A Firstline Securities Limited Blog by: Mike
As we have seen in a series of blog entries that have already been published earlier this year, IFRS 9 Financial Instruments (IFRS 9) introduces major changes in respect of accounting for financial assets and those changes are likely to have a significant impact on the financial statements and operating practices of credit unions in Trinidad and Tobago.
In this series of two blog entries we look first at the work of the World Council of Credit Unions (WOCCU) because it’s always reassuring to know that you (in this case, the credit union movement) have a friend in your corner; and in the second we consider whether IFRS 9 should be applied universally to all credit unions in Trinidad and Tobago.
What are Credit Unions?
Credit Unions are not-for-profit financial cooperatives owned and controlled by the members. They provide safe savings and affordable loans to both individuals and businesses. Larger credit unions offer more sophisticated products such as current accounts, mortgages and advanced savings accounts.
Who are the World Council of Credit Unions (WOCCU)?
WOCCU is an international organisation lobbying on behalf of the credit union movement.
WOCCU performs the following tasks:
What is WOCCU’s position on IFRS 9?
WOCCU is of the view that the implementation of IFRS 9 will significantly increase credit union loan loss provisions and that this increase in loan loss provisions would not be attributable to actual losses because the expected losses calculated under IFRS 9 are a general estimate of what could happen in the future and those estimates may not prove to be accurate or reflect reality in the long term.
WOCCU are also of the opinion that increasing loan loss provisions to account for expected losses under IFRS 9 may also impact on Tier 1 capital calculations. Although outside the scope of this blog entry, Tier 1 capital is a term used to describe the capital adequacy of a financial institution. It comprises of the core capital and reserves of the financial institution. Tier 1 capital is the capital that a financial institution must legally maintain to keep it functioning through all the risky transactions it performs in its day to day operations. Maintaining Tier 1 capital at certain levels is a requirement of the Basel Committee on Banking Supervision.
WOCCU’s position in respect of IFRS 9 can be summarised in the following five bullet points:
Second Blog Entry
In the second blog entry in this series we look at the issues surrounding the implementation of IFRS 9 and consider whether it should be applied universally to all credit unions in Trinidad and Tobago.
Closing thoughts – a time to chill and a time to invest?
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