[Annotated] Timelier provisions may make banks' profits and lending choppier

A new accounting rule^[각주:1] for credit losses^[각주:2] is about to kick in^[각주:3]

In the first quarter of 2018 thousands of banks will look a little less profitable. A new international accounting standard^[각주:4], IFRS 9, will oblige lenders in more than 120 countries, including the European Union's members, to^[각주:5] increase provisions for^[각주:6] credit losses. In America, which has its own standard-setter^[각주:7], IFRS 9 will not be applied - but by 2019 banks there will also have to follow a slightly different regime. 

The new rule as its roots in the financial crisis of 2007-8, in the wake of which the leaders of the G20 countries declared that accounting standards needed an overhaul^[각주:8]. Among their other shortcomings^[각주:9], banks had done too little, too late, to recognize losses on wobbly^[각주:10] assets^[각주:11]. Under existing standards they make provisions only when losses are incurred^[각주:12], even if they see trouble coming^[각주:13]. IFRS 9^[각주:14], which comes into force on^[각주:15] January 1st, obliges them to provide for expected losses instead. 

Under IFRS 9 bank loans^[각주:16] are classified in one of three "stages". When a loan is made - stage one - banks must make a provision equivalent to^[각주:17] the expected loss on it over the next 12 months, however small. There it stays unless things change: if credit risk^[각주:18] increases but the loan is still good (suppose, when a bank has lent money to a house-builder^[각주:19], that the property market^[각주:20] takes a tumble^[각주:21]), it shifts to stage two. The bank must increase the provision, to the expected loss over the life of the loan; its profits take a one-off hit^[각주:22]. If the loan goes bad, it passes to stage three. The provision is the same as in stage two, but from then on^[각주:23] the bank books less interest revenue^[각주:24], in proportion to^[각주:25] the expected loss on the loan. (In the American rule, banks must recognize lifetime expected losses^[각주:26] from the off^[각주:27].) 

In theory, the change makes sense. The old rule flattered^[각주:28] performing loans^[각주:29]. On the one hand, interest rates^[각주:30] reflected a borrower's credit risk; on the other^[각주:31], provisions did not. So loans to riskier borrowers meant higher revenues but no corresponding provisions^[각주:32]; and no provision was made when creditworthiness^[각주:33] declined, as long as borrowers kept servicing their loans. Banks' profits and capital positions were thus^[각주:34], in effect^[각주:35], overstated^[각주:36] until loans went awry^[각주:37]. Timelier^[각주:38] provisions might not have prevented the crisis, but troubles might have been admitted to sooner^[각주:39]. 

In practice, banks will increase their loan-loss provisions^[각주:40] - in the EU, by 13% on average, according to a report published in July by the European Banking Authority (EBA), a supervisor. The EBA estimates that their average ratio of common equity to risk-weighted assets^[각주:41], a key measure of capital strength^[각주:42], will drop by 0.45 percentage points (ratios are typically in low double figures^[각주:43]). Banks with bigger stocks of duff loans^[각주:44] than average will take bigger hits^[각주:45].

For regulatory purposes^[각주:46], the impact will be softer. In calculating common-equity ratios and other gauges^[각주:47], the standard will be phased in over five years^[각주:48], in much the same way as post-crisis^[각주:49] capital standards known as Basel 3. However, reckons Manus Costello of Autonomous Research, markets are likely to look at the full impact from the off, as they have with Basel 3. 

Not everyone is convinced that^[각주:50] IFRS 9 is an improvement^[각주:51]. Quarterly^[각주:52] calculations of^[각주:53] the 12-month expected losses on a wide variety of^[각주:54] sound assets^[각주:55] worth trillions of^[각주:56] euros will involve a lot of informed^[각주:57] guesswork^[각주:58]. That will give big banks a fair amount of^[각주:59] discretion in^[각주:60] modelling^[각주:61]. Natasha Landell-Mills of Sarasin & Partners, an asset manager^[각주:62], worries that rather than making provisions that are too little, too late, banks will instead do "too much, too late". For long-term investors, she says, "ups and downs are^[각주:63] not helpful." 

The EBA reported that 72% of banks indeed expect the new standard to make profits^[각주:64] more volatile^[각주:65]. When recessions^[각주:66] bite^[각주:67] and a lot of loans are moved from stage one to stage two, provisions may rise sharply, in a "cliff effect^[각주:68]". That could in turn cause banks to curb^[각주:69] lending^[각주:70] and worsen^[각주:71] the economic downturn^[각주:72]. That said, the cliff may not be vertiginous^[각주:73]. Mr Costello notes that according to the EBA, under IFRS 9 stage-three loans will account for 78% of provisions and stage 2 for just 14%. So most provisions will be more or less as^[각주:74] they are now. Will banks provide any more prudently^[각주:75]? For the answer, wait for the next crisis. 

1. accounting rule ; (법률) 회계규정(會計規程) [본문으로]
2. credit loss ; [명사] 대손액, 대손예상액 [본문으로]
3. kick in ; 효과가 나타나기 시작하다 ;; [VERB] to start or become activated [본문으로]
4. international accounting standard ; (정치학) <용어>국제회계기준 [본문으로]
5. oblige ; 1. [타동사][VN to inf] [주로 수동태로] 의무적으로[부득이] …하게 하다 [본문으로]
6. provision ; 4. [C] (법률 관련 문서의) 조항[규정/단서] [본문으로]
7. standard-setter ; 표준 설정자 , 표준 세터, 규격 [본문으로]
8. overhaul ; [명사] (기계・시스템의) 점검[정비] [본문으로]
9. shortcoming ; [명사] (주로 복수로) 결점, 단점 [본문으로]
10. wobbly ; (비격식) 1. (불안정하게) 흔들리는, 기우뚱한 ;; 2. 불안정한, 떨리는 [본문으로]
11. assets ; 1. [pl.] [會計](채무에 충당되는) 개인[회사]의 재산, 자산(↔liabilities); [法]자산의 전(全)항목(동산·부동산·증권·돈 따위) [본문으로]
12. incur ; [동사] (-rr-), (격식) 1. (좋지 못한 상황을[에]) 초래하다[처하게 되다] ;; 2. (비용을) 발생시키다[물게 되다] [본문으로]
13. see sth coming ;(문제가 되는) ~이 있을 것을 알다 [본문으로]
14. IFRS 9 ; IFRS 9 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB). It addresses the accounting for financial instruments. It contains three main topics: classification and measurement of financial instruments, impairment of financial assets and hedge accounting. It will replace the earlier IFRS for financial instruments, IAS 39, when it becomes effective in 2018. However, early adoption is allowed. [본문으로]
15. come[enter] into force ; 발효[시행]되다, (법률이) 효력을 발생하다. [본문으로]
16. bank loan ; 은행 융자(금) [본문으로]
17. equivalent to ; ~와 같음, 상응함 [본문으로]
18. credit risk ; 신용 리스크 ((채무 변제 불능의 위험성이 있는 채무자, 또는 그 위험성)) [본문으로]
19. house builder ; [명사] 가옥 건축업자, 목수 [본문으로]
20. property market ; 부동산 시장 [본문으로]
21. take a tumble ; 넘어지다. [본문으로]
22. one-off ; (美 |one-shot) [명사 앞에만 씀] (英) 단 한 번의 [본문으로]
23. from then on ; 그때부터 (쭉), 그 이래. [본문으로]
24. interest revenue ; 이자 수익 [본문으로]
25. in proportion to ; …에 비례하여, …와 균형을 이루어 [본문으로]
26. expected loss ; (지식경제용어) 예상손실 [본문으로]
27. from the off ; 처음부터 [본문으로]
28. flatter ; 3. [타동사][VN] (실제보다) 돋보이게 하다 [본문으로]
29. performing loan ; A loan that is not in or near default. According to the International Monetary Fund, a performing loan is any loan in which: interest and principal payments are less than 90 days overdue; less than 90 days' worth of interest has been refinanced, capitalized, or delayed by agreement; and continued payment is anticipated. All conditions must be present for a loan to be performing. However, the specific definition is dependent upon the loan's particular terms. [본문으로]
30. interest rates ; [명사] 금리 [본문으로]
31. on the one hand ... on the other (hand) ; 한편으로는 …, 다른 한편으로는 … [본문으로]
32. corresponding ; [형용사] ~ (to sth) (~에) 해당[상응]하는 [본문으로]
33. creditworthiness ; [명사] (상업) (대출에서 재정적으로) 신용할 수 있음. [본문으로]
34. thus ; (격식), (참고: far adv.) 1. 이렇게 하여; 이와 같이 [본문으로]
35. in effect ; 1. 사실상[실제로는] ;; 2. 법이나 규정이 시행[발효] 중인 [본문으로]
36. overstate ; [타동사][VN] (실제보다 더 중요한 것처럼) 과장하다 [본문으로]
37. go[run, tread] awry ; 실패하다; (예측 따위에서) 벗어나다, 틀어지다; 길을 잘못 들다 ;; 미국·영국 [ə|raɪ] [본문으로]
38. timely ; [형용사] 시기적절한, 때맞춘 ;; timely < timelier < timeliest| [본문으로]
39. admit ; 1. (사람을) 들이다(let in), 입장[입학·입회]을 허가하다(allow to enter). ;; 3. 허락하다(permit, allow) ; (변명·증거·진술 따위를) 인정하다, 받아들이다(acknowledge). [본문으로]
40. loan loss provision ; 대손상각, 대손충당금 ;; Loan loss provision is an expense set aside as an allowance for uncollected loans and loan payments. This provision is used to cover a number of factors associated with potential loan losses including bad loans, customer defaults and renegotiated terms of a loan that incur lower than previously estimated payments. Loan loss provisions are an adjustment to loan loss reserves and can also be known as valuation allowances. [본문으로]
41. risk-weighted assets ; (경제) 위험가중자산(危險加重資産) [본문으로]
42. capital strength ; 자본력 [본문으로]
43. double figures ; (특히 英) (美 주로 ˌdouble 'digits) [pl.] 두 자릿수(10에서 99까지의 수) [본문으로]
44. duff ; [형용사] (英 비격식) 쓸모없는, 제대로 작동이 안 되는 [본문으로]
45. take a hit ; 타격을 입다 [본문으로]
46. regulatory purpose ; 규제목적 [본문으로]
47. gauge ; 5. [주로 단수로] ~ (of sth) (평가・판단 등의) 기준 ;; 미국∙영국 [geɪdƷ] [본문으로]
48. phase ; [타동사][VN] [주로 수동태로] (일의 진행을) 단계적으로 하다 [본문으로]
49. post-crisis ; after a crisis [본문으로]
50. be convinced that[of] ; …을[…라고] 확신하다, 납득이 가다 [본문으로]
51. improvement ; 1-b. (동일물의) 개량[개선]된 것, 개량[개선](점) ((in)); (전의 것 등에 비하여) 향상된 것, 더 우수한 것[사람] ((on, upon)) [본문으로]
52. quarterly ; [형용사] 분기별의 [본문으로]
53. calculation ; 2. [C , U] 추정, 추산 [본문으로]
54. a wide variety of ; 매우 다양한, 폭넓고 다양한 [본문으로]
55. sound ; 5. <재정 상태 등이> 견실한, 안전한, 자산[신용, 지불 능력]이 있는 [본문으로]
56. trillion ; (수사의 쓰임에 대해서는 hundred에 제시된 용례들을 참조하라.) 1. 1조 ;; HELP ; a, one, two, several trillion등과 같이 쓸 때에는 trillion끝에 s를 붙이지 않는다. 앞에 정확한 수나 양을 나타내는 표현이 나오지 않는 경우에는 trillions (of…)로 쓸 수 있다. trillion이나 trillions와 함께는 반드시 복수 동사를 쓴다. [본문으로]
57. informed ; 1. 정보에 근거한; 견문이 넓은, 소식통의 ;; 2. 교양 있는; 학식이 풍부한, 박식한; 세련된 [본문으로]
58. guesswork ; [U] 짐작, 추측 [본문으로]
59. fair ; 3. QUITE LARGE | [명사 앞에만 씀] (수・크기・양이) 상당한, 제법 큰[많은] [본문으로]
60. discretion ; [U] 1. (자유) 재량(권) ;; 2. 신중함 [본문으로]
61. modelling ; 3. (시스템・절차를 간단히 설명하기 위한) 견본[모델] 제작 [본문으로]
62. asset management ; Asset management is the direction of a client's cash and securities by a financial services company, usually an investment bank. The institution offers investment services along with a wide range of traditional and alternative product offerings that might not be available to the average investor. The account is held by a financial institution and includes checking writing privileges, credit cards, debit cards, margin loans, the automatic sweep of cash balances into a money market fund and brokerage services. [본문으로]
63. ups and downs ; 1. (길 따위의) 오르내림, 기복, 고저. ;; 2. 운명의 부침, 영고 성쇠. [본문으로]
64. make profits ; 수익을 올리다 [본문으로]
65. volatile ; 2. (상황이) (금방이라도 급변할 듯이) 불안한 ;; 미국식 [|vɑ:lətl] 영국식 [|vɒlətaɪl] [본문으로]
66. recession ; 1. [C , U] 경기 후퇴, 불경기, 불황 [본문으로]
67. bite ; 4. HAVE EFFECT | [자동사][V] 악영향이 나타나다 [본문으로]
68. cliff effect ; In economics, the disproportionately positive or negative results of an action. For example, suppose a company takes on too much debt and a credit ratings agency downgrades its bond rating. This may increase the company's borrowing costs significantly, which in turn gives it less cash on hand to make coupon payments. This can lead to a further downgrade and the cycle continues. The cliff effect implies that relatively little separates a company from being seen as quite healthy to being seen as a poor investment. [본문으로]
69. curb ; [타동사][VN] (특히 좋지 못한 것을) 억제[제한]하다 [본문으로]
70. lending ; [U] (금융) 대출, 대부 [본문으로]
71. worsen ; [동사] 악화되다; 악화시키다 [본문으로]
72. economic downturn ; [명사] 경기 침체 [본문으로]
73. vertiginous ; [형용사] (격식) 어지러운, 아찔한 ;; 미국식 [vɜ:r|tɪdƷɪnəs] 영국식 [vɜ:|tɪdƷɪnəs] [본문으로]
74. be more or less as ... ; 어느정도 ...와 같다. [본문으로]
75. prudently ; [부사] 사려 깊게 , 분별 있게 ; 신중하게. [본문으로]