Losses on Loans and AdvancesLosses on Loans and Advances

Losses on Loans and Advances

43. A bank shall disclose the following:

(a) the accounting policy that describes the basis on which uncollectible loans and advances are recognised as an expense and written off;

(b) details of the movements in any allowances for impairment losses on loans and advances during the period. It shall disclose separately the amount recognised as an expense in the period for impairment losses on uncollectible loans and advances, the amount charged in the period for loans and advances written off and the amount credited in the period for loans and advances previously written off that have been recovered; and

(c) the aggregate amount of any allowance account for impairment losses on loans and advances at the reporting date.

44. Any amounts set aside in respect of losses on loans and advances in addition to impairment losses recognised under AASB 139 on loans and advances shall be accounted for as appropriations of retained earnings. Any credits resulting from the reduction of such amounts result in an increase in retained earnings and are not included in the determination of profit or loss for the period.

45. [Deleted by the IASB]

46. Local circumstances or legislation may require or allow a bank to set aside amounts for impairment losses on loans and advances in addition to those losses that have been recognised under AASB 139. Any such amounts set aside represent appropriations of retained earnings and not expenses in determining profit or loss. Similarly, any credits resulting from the reduction of such amounts result in an increase in retained earnings and are not included in the determination of profit or loss.

47. Users of the financial report of a bank need to know the impact that impairment losses on loans and advances have had on the financial position and performance of the bank; this helps them judge the effectiveness with which the bank has employed its resources. Therefore a bank discloses the aggregate amount of any allowance account for impairment losses on loans and advances at the reporting date and the movements in the allowance account during the period. The movements in the allowance account, including the amounts previously written off that have been recovered during the reporting period, are shown separately.

48. [Deleted by the IASB]

49. When loans and advances cannot be recovered, they are written off and charged against any allowance account for impairment losses. In some cases, they are not written off until all the necessary legal procedures have been completed and the amount of the impairment loss is finally determined. In other cases, they are written off earlier, for example when the borrower has not paid any interest or repaid any principal that was due in a specified period. As the time at which uncollectible loans and advances are written off differs, the gross amount of loans and advances and of the allowance account for impairment losses may vary considerably in similar circumstances. As a result, a bank discloses its policy for writing off uncollectible loans and advances.