Featured Product

    MNB Issues IFRS 9 Guidance on Loan Classifications in Context of COVID

    July 27, 2020

    MNB amended a Circular on the use of macroeconomic factors and on the application of factors indicating a significant increase in credit risk, in connection with IFRS 9. By amending the circular, MNB has set minimum requirements for the calculation of impairment levels and introduced flexibility to its prudential expectations related to impairment. From July 27 to the end of next year at the latest—that is, December 31, 2021—market participants in credit institutions will be able to use these modification measures aimed at mitigating the effects of the COVID-19 emergency. The circular applies to domestic banks and credit institution branches.

    According to the MNB impact assessment, without jeopardizing the stable, safe, and prudent operation of the banking system, these recent measures could reduce the level of impairment of credit institutions by up to HUF 120 billion, improve the capital position, and increase lending capacity; this may help to reduce the economic effects of the pandemic. Although the new measures will remain in force until December 31, 2021, the central bank may, based on the current situation, decide to revoke them earlier. The following are the key highlights of the guidance, as explained by MNB in its press release:

    • To preserve prudent practice, MNB has set an expected minimum level of impairment, which must always exceed the level of impairment projected on the stock data for the first quarter of 2020 multiplied by the average impairment coverage at the end of last year. 
    • In connection with macroeconomic forecasts, the central bank expects banks to apply macro-paths along several scenarios and to use the weights assigned to each scenario, which can be calculated in addition to the MNB macroeconomic forecasts (if duly justified) with their own complex macroeconomic models.
    • The central bank reaffirmed that banks are still expected to apply a strong corporate governance system based on management responsibility.
    • Banks are also expected to ensure transparency in their financial statements when applying assumptions and judgments concerning their models, impairment levels, and estimates of uncovered portfolios, when calculating losses, applying credit risk measures, and reclassifications due to increased risk.
    • The unchanged expectation of MNB is that credit institutions identify their risks in relation to their exposures in a timely, consistent, and comparable manner. In line with this, in the current context of calculation uncertainties, it is good practice for banks to also set a portfolio-level lump sum expected loss value for their portfolio for which their model is likely to underestimate expected losses.

     

    Related Links (in Hungarian)

    Keywords: Europe, Hungary, Banking, Accounting, IFRS 9, Financial Instruments, SICR, Credit Risk, COVID-19, Loan Moratorium, Payment Deferrals, Impairment Calculations, MNB

    Featured Experts
    Related Articles
    News

    BCBS Amends Capital Treatment of Non-Performing Loan Securitizations

    BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.

    November 26, 2020 WebPage Regulatory News
    News

    BoE to Move Statistical Data Collection to BEEDs Portal

    BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.

    November 25, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Standards and Guidance for EFS Data Collection

    APRA published the updated reporting standards and guidance for the collection of Economic and Financial Statistics (EFS), following a consultation process. Also published was a response letter to the feedback received on the proposal for amending the EFS reporting standards and guidance.

    November 24, 2020 WebPage Regulatory News
    News

    EC Consults on Criteria for Environmentally Sustainable Activities

    EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable.

    November 20, 2020 WebPage Regulatory News
    News

    IFRS Examines Incorporation of Climate Risk Issues into IFRS Standards

    The IFRS Foundation published material highlighting the ways in which existing requirements in IFRS standards require companies to consider climate-related matters when their effect is material to the financial statements.

    November 20, 2020 WebPage Regulatory News
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6162