Questions

WP/14/170

Supervisory Roles in Loan Loss Provisioning in

Countries Implementing IFRS

Ellen Gaston and In Won Song

WP/14/170

© 2014 International Monetary Fund

IMF Working Paper

Monetary and Capital Markets Department

Supervisory Roles in Loan Loss Provisioning in Countries Implementing IFRS

Prepared by Ellen Gaston and In Won Song1

Authorized for distribution by Michaela Erbenova

September 2014

This Working Paper should not be reported as representing the views of the IMF.

The views expressed in this Working Paper are those of the authors and do not necessarily represent

those of the IMF or IMF policy. Working Papers describe research in progress by the authors and are

published to elicit comments and to further debate.

Abstract

Countries implementing International Financial Reporting Standards (IFRS) for loan loss

provisioning by banks have been guided by two different approaches: International

Accounting Standards (IAS) 39 and Basel standards. This paper discusses the different

accounting and regulatory approaches in loan loss provisioning, and the challenges

supervisors face when there are different perspectives and lack of guidance from IFRS. It

suggests actions that supervisors can take to help banks meet regulatory and capital

requirements and, at the same time, comply with accounting principles.

JEL Classification Numbers: G2, G21, G280, M41, M480

Keywords: Supervisory role, loan loss provisioning, IFRS implementation

Author’s E-Mail Address: egaston@imf.org; isong@imf.org

1

We would like to express our appreciation to Michaela Erbenova for her support and guidance throughout the

production of this paper. We would also like to thank Miguel A. Savastano, Pierpaolo Grippa, Alejandro Lopez,

Fabiana Melo, Michael Moore, Katharine Seal, and Kenneth Sullivan (all MCM), and Linda Ditchkus (MCM

expert), for their useful comments. Any remaining errors are the responsibility of the authors.

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Contents

Page

I. Introduction...