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Marcus Morton, Managing Director in Duff & Phelps’ Valuation Advisory practice, recently discussed the difficulties banks are facing while assessing credit losses, in The Global Treasurer.
Given the current coronavirus crisis, banks need “certainty and clarity” from the government, states Marcus. “The best thing would be some level of clarity on where they expect us to go, therefore what they’re going to put into place so that from the credit-modelling point of view, you can actually construct your credit scenarios correctly, with a reasonable degree of certainty on what’s going to happen. So that you can make the assessment of whether or not your default probability has significantly changed or not,” he adds.
Furthermore, with the introduction of the revised IFRS 9 rules which cover the amount of money banks must set aside to offset distressed loans, several banks have called for a delay due to the high amounts of capital required to cover these loans.
“IFRS 9 is already in place so I am not sure it can be delayed. That said, the decision on the expected credit losses is meant to take into account any information about support from the government so clarity on what assistance will be available is necessary before the decision on any expected credit losses can be completed,” Marcus says.
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