Accounting body says loan rule for banks ready in January

Reuters

* New impairment rule in 2017, nine years after crisis

* Hopes of single global impairment rule all but ended

* Banks say new rule to mark a profound change

* IASB says converged global rules "difficult"

By Huw Jones

LONDON, Dec 3 (Reuters) - An accounting rule forcing banksto set aside capital far earlier for troubled loans will becompleted next month and start in 2017, a global standard settersaid on Tuesday.

Leaders of 20 major economies (G20) called for the new rulein 2008 at the height of the financial crisis when taxpayers hadto bail out undercapitalised banks.

Banks currently set aside capital when a loan effectivelydefaults, seen as too late, and the new rule would force lendersto set aside at least some capital upfront before any impairmentappears.

The G20 wanted a single global rule for investors to comparethe health of top lenders but this is now unlikely despite fiveyears of trying by two key standard setters.

The Financial Accounting Standards Board (FASB), which setsrules in the United States, and the International AccountingStandards Board (IASB), which writes standards in over 100countries, including Europe, are finalising two different rulesto the disappointment of the G20.

"I think we will finish deliberations in January. We arepractically done and we don't have any more major decisions tomake," IASB Chairman Hans Hoogervorst told Reuters.

"That means it should be ready for an effective date of thefirst of January 2017," Hoogervorst said on the sidelines of aconference organised by the ICAEW, an accounting body.

FASB is reconsidering its own draft version, with the IASBmodel as one possibility but the "most likely scenario" forachieving a single rule would be for the U.S. standard setter toadopt the IASB model, Hoogervorst said.

Few believe this will happen given big differences andmounting regulatory pressure for an agreement now that fiveyears have passed since the G20 call was made, with another fouryears to go before the IASB rule will take effect.

FASB wants banks to make provisions for full lifetime lossesfrom the first day of the loan, while the IASB has opted for astaged approach with only some provisioning at the start.

PROFOUND CHANGE

Richard Thorpe, senior accounting and auditing advisor tothe G20's regulatory task force, the Financial Stability Board,said he would much rather have a single global rule.

"We haven't managed to get the same accounting after fiveyears of trying and that really is a shame," Thorpe said.

With two rules it would be harder for investors to comparebanks and they also left too much to judgement, making it harderto apply them consistently, Thorpe said.

"There will be a big change in the size of provisions. Howearly can banks provide information in the accounts on theeffects of the standard?" Thorpe added.

Banks are anxious for a final agreement as the new rule willrequire major preparatory work.

"This is going to be quite a profound change," DavidBradbery, European head of technical accounting group atBarclays bank, told the conference.

"We are starting to see interest from investors and analystseven at this early stage into what might be the impact of theseproposals, and that is only going to increase as we get closerto adoption," Bradbery said.

"First reporting is not necessarily going to be clearlyunderstood by everyone. We are looking to the publication of thestandards as the start of a comprehensive understandingprocess," Bradbery added.

The G20 wants the two standard setters to say by year-endhow they will "converge" all their rules, a deadline that hasbeen repeatedly put back as the United States has yet to committo adopting globally written rules.

"I think there is a recognition in the Financial StabilityBoard that it's going to be very difficult to come together,"Hoogervorst said.

View Comments