These measures are a response to the forthcoming international accounting standards on provisioning, which incorporate forward-looking assessments in the estimation of credit losses.

IFRS 9 Financial Instruments will take effect on 1 January 2018 (earlier application is permitted).

The current expected credit losses (CECL) model will take effect on 1 January 2020 for certain banks that are public companies and in 2021 for all other banks, with early application permitted for all banks in 2019.

The committee supports the use of expected credit loss (ECL) accounting approaches and encourages their application in a manner that will achieve earlier recognition of credit losses than incurred loss models while also providing incentives for banks to follow sound credit risk management practices.

Nevertheless, the implementation of ECL accounting is likely to have implications for regulatory capital, as the new accounting provisioning models introduce fundamental changes to banks’ provisioning practices.

Given the limited time until the effective date of IFRS 9, the Basel Committee will retain the current regulatory treatment of provisions under the Basel framework for an interim period. This will allow more time to thoroughly review the longer-term regulatory treatment of provisions.

Jurisdictions may adopt transitional arrangements to smooth any potential significant negative impact on regulatory capital arising from the introduction of ECL accounting.

The Basel Committee on Banking Supervision, Regulatory treatment of accounting provisions – interim approach and transitional arrangements, is available here