By Huw Jones
LONDON (Reuters) - Rules forcing banks to provision for losses on souring loans should not be treated as being hard and fast when it comes to dealing with fallout from the coronavirus pandemic, the International Accounting Standards Board (IASB) said on Friday.
Banks have said that without relief, the rule known as IFRS 9 will mean ballooning provisions for loans turning sour as business activity shrinks because the coronavirus is closing down large parts of economies around the world.
Provisions directly affect profits and eat into capital.
The IASB echoed messages from European Union and British regulators that banks should use their judgment and consider the wider picture when applying the rule to a loan in the face of a temporary shock like the coronavirus outbreak.
"IFRS 9 requires the application of judgment and both requires and allows entities to adjust their approach to determining expected credit losses in different circumstances," said the board, which writes accounting rules used in over 150 countries but not the United States, which has its own body.
"A number of assumptions and linkages underlying the way expected credit losses have been implemented to date may no longer hold in the current environment."
Governments have ploughed billions of euros into relief packages for businesses and individuals, such as "holidays" on mortgage repayments, to mitigate the impact of coronavirus.
Such holidays should not automatically mean that banks must provision more for a loan because of a gap in repayments, the IASB said in its statement.
Three U.S. banking regulators, including the Federal Reserve, on Friday said banks could ignore the capital implications of the U.S. expected loss accounting rule for two years, going further than their counterparts in Europe.
(Reporting by Huw Jones; Editing by Jon Boyle and Pravin Char)
