Bank Of Spain Wants To Change Provisions Circular Ahead Of International Normative

Bank of SpainBank of Spain

The Bank of Spain (BoS) wants to modify the recent circular 4/2016 which regulates the method for calculating provisions in the sector.  Bankinter says the news shouldn’t come as a suprise given that the BoS aimed to implement the new accounting regulations (IFRS9) in the first half of 2016 but delayed their application until 2017.

The changes to the circular will probably mean the banks will have to modify the way they calculate provisions. It’s worth pointing out that under the normative established by the International Accounting Standard Board (IASB), which is expected to be introduced on a European-wide level on 1 January 2018, provisions will be calculated according to the expected loss in a credit transaction and not according to the loss incurred as up to now.

As a result of this change, the banks will be able to use internal risk models. According to Bankinter:

“the differences in the cost of risk applied by each lender will increase, as well as foreseeably the volatility in their results.”