ECL provision and security deposit from debtors

Hello,

whether we can provide ECL provision on total outstanding from debtor less security deposit obtained from them.?

Replies (2)
Quick Summary
This discussion explores whether Expected Credit Loss (ECL) provisions can be made on the total outstanding amount from debtors, net of any security deposits received. While provisions can be made, it's crucial that the amount is reliably estimated and recognised only for the ECL, not the net amount after deducting collateral. Basel norms suggest a 12-month tenure for ECL and liquidity shortfall, but the uncertainty in selling security deposits means only the ECL amount should be recognised initially. Further provisions may be needed if collateral value decreases, following impairment rules rather than general bad debt provisioning.

You can create a provision for ECL. But I believe that amount should be reliably estimated and recognised only to the amount of ECL but not the net of ECL (ECL-collateral). Basel norms prescribes tenure to treat ECL and liquidity shortfall for 12 months. Since it could take more time to sell the security deposits from debtors, the timing being uncertain, and collateral quality can possibly change, we should recognise the amount of ECL only. 

Then another provision for securitised assets related to ECL should be created in case if the value of the collateral has lowered. (If it falls under the scope of Provisions or Basel regulatory framework, or else, follow impairment) This is because, big bath provisioning is not allowed in new reporting standards.

looks like a lot has changed since 2018, and I think this framework and IFRS are teamed up to provide a solution: https://www.pwc.co.uk/who-we-are/regional-sites/midlands/insights/Impairment-its-NOT-a-general-bad-debt-provision.H T M L

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register