Regarding the Column "of which: Instruments with low credit risk" detailed in the Template 4 series. Is there an expectation to have this populated by institutions which have not elected to adopted the practical expediency which IFRS 9 allows for the implementation of the new standard?
We understand that the Basel Committee does not expect institutions to adopt the practical expediency afforded in the new standard IFRS 9 Financial Instruments. The Committee expects that banks develops systems and process which will enable high quality implementation of IFRS 9.
The amount reported in column 020 of templates F 04.03.1 and F 04.04.1 of Annexes III and IV to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) as amended by Regulation (EU) 2017/1443 shall be determined in accordance with Annex V, Part 2, Title IV, chapter 2.75 to the ITS on Supervisory Reporting, i.e. it shall represent the instruments with low credit risk at the reporting date for which the institution assumes that the credit risk has not increased significantly since initial recognition.
Financial instruments with low credit risk are defined under IFRS 9 B5.5.22 as meeting the following criteria: the financial instrument has a low risk default, the borrower has strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term will not necessarily reduce the ability of the borrower to fulfil its contractual cash flow obligations.
They should be determined by institutions using their internal credit risk ratings or other generally recognised methodologies as defined under IFRS 9 B5.5.23.
So, the scope of this column is limited to financial assets for which the institution makes use of the practical expedients in IFRS 188.8.131.52 for determining whether there has been a significant increase in credit risk.