in IFRS 9 are not applied, disclosure should be given by class of instrument of the amount
that best represents the entity’s maximum exposure to credit risk at the reporting date
(see 5.3.3 above). The amount disclosed should not take account of any collateral held or
other credit enhancements (e.g. netting agreements that do not qualify for offset in
accordance with IAS 32). This disclosure is not required for financial instruments whose
carrying amount best represents this amount, [IFRS 7.36(a)], but will be required, for example,
for written credit default swaps measured at fair value through profit or loss.
Entities should also provide, by class of financial instrument to which the impairment
requirements in IFRS 9 are not applied, a description of collateral held as security and
of other credit enhancements, and their financial effect (e.g. a quantification of the
extent to which collateral and other credit enhancements mitigate credit risk) in respect
of the amount that best represents the maximum exposure to credit risk. This applies
irrespective of whether the maximum exposure to credit risk is disclosed separately or
is represented by the carrying amount of a financial instrument. [IFRS 7.36(b)]. The
requirement may be met by disclosing: [IFRS 7.IG22]
• the policies and processes for valuing and managing collateral and other credit
enhancements obtained;
• a description of the main types of collateral and other credit enhancements
(examples of the latter being guarantees and credit derivatives, as well as netting
agreements that do not qualify for offset in accordance with IAS 32);
• the main types of counterparties to collateral and other credit enhancements and
their creditworthiness; and
• information about risk concentrations within the collateral or other credit
enhancements.
Whilst the standard suggests this information should, or at least could, involve disclosure
of quantitative information, the implementation guidance implies more discursive
disclosures might suffice in some cases. Therefore entities will need to make a judgment
based on their own specific circumstances.
5.3.5
Collateral and other credit enhancements obtained
When an entity obtains financial or non-financial assets during the period by taking
possession of collateral it holds as security, or calling on other credit enhancements such
as guarantees, and these assets meet the recognition criteria in other standards, it should
disclose for such assets held at the reporting date: [IFRS 7.38]
• the nature and carrying amount of the assets; and
• when the assets are not readily convertible into cash, its policies for disposing of
such assets or for using them in its operations.
This disclosure is intended to provide information about the frequency of such activities
and the entity’s ability to obtain and realise the value of the collateral. [IFRS 7.BC56].
Financial
instruments:
Presentation and disclosure 4209
5.3.6
Credit risk: illustrative disclosures
The following example illustrates what some of the disclosures about credit risk and
loss allowances for one class of a bank’s lending might look like. In preparing this
example the following approach has been taken:
• although not explicitly required by IFRS 7, in order to provide relevant
qualitative and quantitative information (see 5.3.3 above) and in line with the
examples to the standard:
• a reconciliation of movements in the gross carrying amounts in a tabular
format has been provided; and
• loans that are assessed on a specific basis and those assessed collectively have
been shown separately;
• IFRS 7 does not require disclosure of the proportion of stage 2 loans that are
30 days past due, but this is regarded as useful information by users and has
therefore been included;
• in order to avoid excessive detail only the net effect of using multiple scenarios has
been provided rather than providing details of the scenarios and their weightings; and
• in practice the various parameters used are unlikely to be independent and, in line
with the EDTF’s recommendations (see 9.2 below), sensitivity to only one
parameter has been disclosed.
Example 50.8: Certain disclosures of impairment allowances by a bank for one
class of lending
Small business lending
The table below shows the credit quality and the maximum exposure to credit risk based on the Bank’s
internal credit rating system and year-end stage classification. Except for POCI loans, the amounts
presented are gross of impairment allowances. The table analyses separately those loans which are
assessed and measured individually and those which are assessed and measured on a collective basis:
In $ million
2019
2018
Internal rating
Stage 1
Stage 1
Stage 2
Stage 2 Stage 3
POCI
Total
Total
grade
Individual Collective Individual Collective
Performing
High grade
1,168
832
–
–
–
– 2,000 2,358
Standard grade
728
340
299
358
–
– 1,725 1,886
Sub-standard grade
–
–
213
321
–
23 557 180
Low grade
–
–
75
194
–
– 269 120
Non-performing
Individually impaired
–
–
–
–
205
31 236 208
Total 1,896
1,172
587
873
205
54
4,787
4,752
4210 Chapter 50
The following is a reconciliation of the gross carrying amounts at the beginning and end of year:
In $ million
Stage 1
Stage 1
Stage 2
Stage 2
Stage 3
POCI
Total
Individual Collective Individual Collective
Gross carrying amount as
1,871
1,129
626
938
188 –
4,752
at 1/1/19
Assets originated/
167
163
–
–
– 56 386
purchased
Assets
(137)
(125)
(59)
(81)
(35) (4) (441)
de-recognised
or repaid
Transfers to Stage 1
16
8
(16)
(8)
– – –
Transfers to Stage 2
(48)
(19)
62
19
(14)
–
–
(5)
(4)
(36)
(12)
57
–
–
Modifications
–
–
–
–
(9) – (9)
to contractual cash flows
Change in interest
21
12
4
13
27 – 77
charged but not received
Amounts written-off
–
–
–
–
(12) – (12)
Foreign exchange
11
8
6
4
3 2 34
revaluation
At 31/12/19
1,896
1,172
587
873
205
54
4,787
The following is a reconciliation of the ECL allowances as at the beginning and end of the year. The effect on
ECLs of transfers between stages has been calculated based on the allowances recorded at the date of transfer:
In $ million
Stage 1
Stage 1
Stage 2
Stage 2
Stage 3
POCI
Total
Individual Collective Individual Collective
ECL allowances as
48
41
36
47
79 –
251
at 1/1/19
Assets originated/
5
15
–
–
– – 20
purchased
Assets de-recognised
(4)
(12)
(5)
(3)
(4) – (28)
or repaid
Transfers to Stage 1
1
–
(2)
(1)
– – (2)
Transfers to Stage 2
(4)
(1)
21
5
– – 21
Transfers to Stage 3
(1)
(1)
(10)
(4)
20
–
4
Unwind of discount
9
10
5
6
13
–
43
Modifications
–
–
–
–
(6) – (6)
to contractual cash flows
Changes to models and
7
10
6
5
18 3 49
inputs used
for ECL calculations
Amounts
–
–
–
–
(12) – (12)
written off
Foreign exchange
2
2
1
1
1
–
7
At 31/12/19
63
64
52
56
109
3
347
Of the $587m of loans classified as stage 2 on an individual basis, $37m (1 January: $33m) of loans and
$17m (1 January: $16m) of ECLs are more than 30 days past due.
The credit risk for the bank’s small business customers is mostly affected by factors specific to individual
borrowers, but, given the available information, the ECLs for the majority of the loans are measured on a
collective basis. The key inputs in the ECL model, apart from the bank’s own credit risk appraisal process,
Financial
instruments:
Presentation and disclosure 4211
are assumptions about changes in Gross Domestic Product (GDP) and future interest rates. As at
1 January 2019, the base scenario assumed that GDP will increase by 2.6% in 2019 and 2.0% in 2020, with
the rate of increase declining over the next four years to 1.5%. GDP grew during 2019 by only 2.0% and is
now forecast to grow by only 1.3% in 2020, increasing to 1.5% over the next four years. The base rate of
interest assumed in the base scenario as at 1 January 2019 was 1.2% for 2018 and 1.4% for 2020, increasing
to 2.2% over the next four years. The average rate for 2018 was 1.4% and the forecast for 2020 is now 1.5%,
increasing to 2.3% over the next four years.
The allowance was calculated using, in addition to the base scenario, an upside scenario and two downside
scenarios, all weighted to reflect their likelihood of occurrence. The allowance as at 31 December 2019, based
upon the bank’s base case scenario, is $312.5m. The effect of applying multiple economic scenarios is to
increase the allowance by $34.5m (11%). (As at 1 January the equivalents were: $230m, $40m and 14.8%).
Based upon past experience, reducing the growth in GDP over the next three years by 1% (keeping
interest rates constant) would increase the ECLs by approximately $14m (1 January: $18m).
The largest contribution to the increase in ECLs of the portfolio during the year was the update to inputs to
models to reflect the deterioration in economic conditions. However, the result of changes in the base
scenario has been partly offset by a small reduction in the effect of using multiple economic scenarios.
5.4 Liquidity
risk
5.4.1
Information provided to key management
As set out at 5.2 above, an entity should disclose summary quantitative data about its
exposure to risk on the basis of the information provided internally to key management
personnel and IFRS 7 emphasises that this requirement applies to liquidity risk too.
[IFRS 7.B10A, BC58A(b)].
Entities should provide an explanation of how the data disclosed are determined. If
the outflows of cash (or other financial assets) included in the data could occur
significantly earlier than indicated, that fact should be stated and quantitative
information should be provided to enable users of the financial statements to evaluate
the extent of this risk, unless that information is included in the contractual maturity
analyses (see 5.4.2 below). Similar information should be given if the outflows of cash
(or other financial assets) could be for significantly different amounts than those
indicated in the data. This might be required, for example, if a derivative is included
in the data on a net settlement basis, but the counterparty has the option of requiring
gross settlement. [IFRS 7.B10A].
5.4.2 Maturity
analyses
To illustrate liquidity risk, the principal minimum numerical disclosures required are:
[IFRS 7.39(a), (b)]
• a maturity analysis for non-derivative financial liabilities (including issued financial
guarantee contracts) that shows their remaining contractual maturities; and
• a maturity analysis for derivative financial liabilities which includes the remaining
contractual maturities for those derivative financial liabilities for which contractual
maturities are essential for an understanding of the timing of the cash flows.
The contractual maturities of the following would be essential for an understanding
of the timing of the cash flows: [IFRS 7.B11B]
4212 Chapter 50
•
an interest rate swap with a remaining maturity of five years in a cash flow
hedge of a variable rate financial asset or liability; and
• all loan commitments.
Derivatives entered into for trading purposes that are typically settled before their
contractual maturity (e.g. in response to fair value movements) are an example of
the type of instrument that might not need to be included in the maturity analysis.8
These requirements are discussed further in the remainder of this sub-section.
Although these minimum disclosures address only financial liabilities, other aspects of
IFRS 7 mean that most financial institutions will be required to disclose a maturity
analysis of financial assets too (see 5.4.3 below).
5.4.2.A Time
bands
The time bands to be used in the maturity analyses are not specified. Rather, entities
should use their judgement to determine what is appropriate. For example, an entity
might determine that the following are appropriate: [IFRS 7.B11]
• not later than one month;
• later than one month and not later than three months;
• later than three months and not later than one year; and
• later than one year and not later than five years.
In practice it is rare for entities outside of the financial services sector to present more
than one time band covering amounts payable within one year. However, it is quite
common for more than one time band to be given covering amounts payable later than
one year and within five years as Unilever and Nestlé have done (see Extracts 50.4 and
50.5 respectively at 5.4.2.G below). For banks and similar institutions an ‘on demand’
category could also be relevant.
When applied, IFRS 16 requires lessees to disclose a maturity analysis of lease liabilities
applying paragraphs 39(a) and B11 of IFRS 7 separately from the maturity analyses of
other financial liabilities. [IFRS 16.58]. It also adds guidance to IFRS 7 illustrating a number
of different approaches, each of which takes into account the maturity of the financial
liabilities being presented. Two of these examples simply show lease liabilities as a
separate line within a table. A third example illustrates an entity with all financial
liabilities due within three years except lease liabilities which extend for 25 years. For
this entity, two tables are presented, one including all financial liabilities using the
following time bands:
• less than 1 month;
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 834
