Standards to Bank On:

PFRSs and PASs for Banks

PFRSs and PASs for Banks
• Classification and measurement
PFRS 9 • Expected credit loss
• Hedge accounting

PFRS 15 Five-step revenue recognition model

• PFRS 16, Leases

• PAS 40, Investment Property
Others • PAS 16, Property, Plant and Equipment
• PAS 36, Impairment of Assets
PFRS 9, Financial Instruments
Classification and Measurement
01 • SPPI test
• Business model assessment
• Hedge accounting

Expected Credit Losses

02 • Stage classification
• ECL measurement

Hedge Accounting
03
PAS 39 vs PFRS 9
 PFRS 9, Financial Instruments
01 Classification and Measurement
Principal
Fair value of the
financial asset at initial
recognition

Interests

• Time value of money

• Credit risk
• Other lending risks
• Profit margin
 PFRS 9, Financial Instruments
01 Classification and Measurement – Test cases

SPPI or not? SPPI or not? AC / FVOCI / FVTPL

A bond which pays
variable interest
based on Philippine
Treasury bill rates
HTC / HTCS / Neither
A debt instrument with
a redemption amount
A portfolio of
at maturity computed
based on the issuer’s preferred shares is
share price being managed with
a primary objective of
collecting non-
cumulative dividends.

A portfolio of government securities is Sales under this

being managed to collect cash flows portfolio is expected
of the assets and as a primary to be infrequent.
source of liquidity for the Bank
 PFRS 9, Financial Instruments
02 Expected Credit Losses
01

With ECL
Defaulted?
SICR? measurement

Stage 1 12-month ECL

Stage 2 Lifetime ECL

Stage 3 Lifetime ECL

SICR definition Default definition

• 90 days past due
• 30 days past due
• Objective evidence of
• Downgrade in risk
impairment
ratings
• BSP’s NPL definition
 PFRS 9, Financial Instruments
02 Expected Credit Losses
01

EAD = Exposure at Default

PD = Probability of Default
LGD = Loss Given Default

ECL = EAD x PD x LGD

- Time value of money

- Unbiased and probability-weighted
- Reasonable and supportable information about past events,
current conditions, and forecasts of future economic conditions
 PFRS 9, Financial Instruments
02 Expected Credit Losses
01
 PFRS 9, Financial Instruments
02 Expected Credit Losses – Test cases
01
A Php1-billion loan receivable from Borrower ABC has the following ECL information:
12-month ECL = Php2 million
Lifetime ECL = Php100 million
Lifetime ECL (at 100% PD) = Php500 million

Stage 1 / Stage 2 / Stage 3 Stage 1 / Stage 2 / Stage 3

If the loan is current but it is

If the loan is 50 days past due
probable that the borrower will
and it exhibited SICR
file bankruptcy

ECL amount? ECL amount?

If the loan is current but it is

If the loan is 50 days past due
probable that the borrower will
and it exhibited SICR
file bankruptcy
 PFRS 9, Financial Instruments
03 Hedge Accounting
02
01

Area Key changes under PFRS 9

Hedge effectiveness testing • 80-125% threshold was removed

• Assessment now focuses on economic
relationship

Hedged item • Risk component of non-financial items

(e.g., oil price) can now be designated
• More groups of items (e.g., layer
designation) can be designated

Hedging instrument • Time value of an option, the forward

element of a forward contract, and foreign
currency basis spread can be excluded
from the designation
 PFRS 15, Revenue from Contracts with Customers

Step 1: Step 2: Step 3: Step 4: Step 5:

Identify the Identify the Determine the Allocate the Recognize
contract performance transaction transaction revenue
obligations price price

PO #1: Set up an
Contract with a
asset management
client to set up an
account PO #1: Php2 million PO #1: point in time
asset management
Php10 million
account and
PO #2: Manage PO #2: Php8 million PO #2: over 2 years
manage funds over
funds over a 2-year
a 2-year period
period
 Other PFRSs and PASs

PFRS 16, Leases PAS 40, Investment Property

• Lease contract • Initial measurement
• Lease term • Cost vs fair value model
01 • Discount rate • BSP provisions on ROPA 02

PAS 16, PPE PAS 36, Impairment of Assets

• Recognition requirement • Recoverable amount
04 • Initial measurement • Goodwill impairment 03
• Depreciation • Discount rate
Thank you!

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me at martanthony.delapena@gmail.com.