A Firstline Securities Limited Blog by: Mike
Over the next 5 days we look at IFRS 9 and Credit Unions. Commentators suggest that Credit Unions will struggle to implement this standard which is applicable for the accounting period commencing on or after the 1st January 2018. Will you be ready or do you need help?
The implementation of IFRS 9 creates many challenges for credit unions operating in Trinidad and Tobago. This series of blog entries is designed to assist our credit union clients to identify implementation issues relevant to them which in turn will allow them to design appropriate responses to address these.
These blog entries should not be considered as a definitive guide. Each credit union will have its own unique characteristics and these blog entries should not be considered to be a substitute for each individual credit union seeking its own independent advice (where considered necessary) and then applying the impairment principles contained in IFRS 9 to their own unique pool of financial assets.
IFRS 9 does not provide a definition of default. In practice each individual credit union – if it doesn’t already have an established definition – will have to create its own definition of default. The definition that the credit union uses should be based upon its own internal credit risk management practices and policies, and the definition used must be consistent with the definition used to measure what is referred to as the “probability of default” (discussed in detail below).
In accordance with IFRS 9 the definition of default must consider qualitative indicators such as financial covenants when appropriate.
All credit unions should be aware that there is a rebuttable presumption that default takes place no later than 90 days past due.
The probability of default is an estimate of the likelihood of default over a given period of time.
Two types of probability of default are used for calculating expected credit losses (defined below):