International Accounting Standards Board

September 27, 2023
AColumbus Building
7 Westferry Circus
Canary WharfLondon E14 4HD
United KingdomJapanese Bankers Association

Comments on the International Accounting Standards Board’s Request
for Information Post Implementation Review of IFRS 9 Financial
Instruments― Impairment
The Japanese Bankers Association (the “JBA”) 1 is pleased to provide comments on the Request forInformation Post Implementation Review of IFRS 9 Financial Instruments ― Impairment (the“Request for Information”) published by the International Accounting Standards Board (the “IASB”).
The JBA appreciates the work of the IASB and would like to express our views based on comments
received from member banks on several of the questions raised in the Request for Information.

Answers to specific questions
Question 1—Impairment
Do the impairment requirements in IFRS 9 result in:(a)more timely recognition of credit losses compared to IAS 39 and address the complexity
caused by having multiple impairment models for financial instruments? Why or why not?

(b)

an entity providing useful information to users of financial statements about the effect ofcredit risk on the amount, timing and uncertainty of future cash flows? Why or why not?

Response to (a)We are of the view that the expected credit loss model in IFRS 9 allows for the timely recognition ofcredit losses compared to the ‘incurred loss’ model in IAS 39. As described in Spotlight 1 of theRequest for Information, we consider that the expected credit loss model could be assessed as having
resulted in the appropriate recognition of loss allowances during the COVID-19 pandemic.

Response to (b)As long as the general approach, which allows an entity to recognise 12-month expected credit losses1The Japanese Bankers Association is an organization that represents the banking industry inJapan. Its members are banks and bank holding companies operating in Japan.

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(stage 1) or lifetime expected credit losses (stage 2 and stage 3) according to increases in credit risk
since initial recognition, operates on a principle basis, as is currently the case, we believe that itprovides flexibility for the entity and useful information for users of financial statements.
In the Request for Information, it is noted that some users of financial statements raised issues relating
to the diversity in financial statements and comparability between entities. However, we are concernedthat if accounting standards specify details without leaving it to practical discretion, the ongoing
operational costs will be excessive compared to the possible additional benefits. Given that IFRS is aset of principles-based accounting standards to begin with, and that the current IFRS 9 is a standard
that enables entities to recognise credit losses in a timely manner from a broad perspective and ensuresa certain degree of comparability, we believe that there is no need to add more detailed requirements
and the IASB should maintain the current requirements.
Question 2—The general approach to recognising expected credit losses(a)

Are there fundamental questions (fatal flaws) about the general approach? If yes, what arethose fundamental questions?

We are not aware of any fundamental questions or fatal flaws regarding the general approach. The
approach of classifying financial assets into stages 1 to 3 according to increases in credit risk andrecognising credit losses is appropriate in the sense that it ensures recognising more credit losses forfinancial assets with deteriorating credit risk and presenting the balance of deteriorated financial assets
in a way that provides clear information to users of financial statements.

Question 4—Measuring expected credit losses(b)

Can the measurement requirements be applied consistently? Why or why not?
Spotlight 4.2—Post-model adjustments or management overlays
the IASB would like to understand from stakeholders the circumstances in which the use of
post-model adjustments or management overlays significantly reduces the usefulness of
information provided to users of financial statements and how that relates to therequirements in IFRS 9 or IFRS 7.
Spotlight 4.3—Off-balance-sheet exposures
The IASB is asking stakeholders about the fact patterns in which diversity in applying therequirements is observed, the effects of diversity in financial statements and thepervasiveness of those fact patterns.

2Response regarding Spotlight 4.2.
In estimating expected credit losses, management overlays are necessary because there are limitations
in reflecting forward-looking information based on macro-statistical models alone under conditions ofincreased uncertainty in the economic environment, such as the outbreak of the COVID-19 pandemic.
In this regard, Spotlight 4.2 of the Request for Information refers to the concerns of some stakeholders(e.g. users of financial statements and regulators) about the increased use of management overlays or
post-model adjustments, as they reduce “the comparability of expected credit losses between entities”
but companies are disclosing information, including voluntary disclosures, when using management
overlays, etc.
The introduction of detailed rules for the sole purpose of improving comparability, simply because ofdiversity in practices of the future forecasting methods, may negate the good practices that have been
established in each jurisdiction. As stated in IFRS 9 BC5.242, adopting “a principle-based approach
would help reduce complexity and mitigate operational challenges by allowing an entity to use
techniques that work best in its specific circumstances”. For example, Japanese banks have practices
of using forward-looking methods to identify and recognise provisions for the risk of fluctuations infuture cash flows especially for sectors where the impact of economic fluctuations on future cash flowsis significant. These practices could be considered as an example of a management overlay. From theperspective of not preventing the application of standards that takes into account the practices of eachjurisdiction, we recommend that the IASB maintain its current principles-based approach. This would
result in the appropriate recognition of expected credit losses depending on the circumstances, at thediscretion of the entity.

Response regarding Spotlight 4.3.
There are certain types of guarantee contracts (e.g. performance bonds) for which it is difficult todetermine the accounting treatment as to whether they fall within the definition of financial guarantee
contracts under IFRS 9 or insurance contracts under IFRS 17. On the one hand, financial guarantees
provided by the banking sector and financial guarantees provided by the insurance sector (which aresimilar to insurance contracts) are clearly differentiated according to regulations in some jurisdictions.
Under the practices in Japan, risk management is carried out based on this distinction and figuressubmitted to financial regulators are calculated in the same classification as risk management.
Therefore, the application of IFRS 9 to guarantees subject to banking sector regulations and IFRS 17to guarantees subject to insurance sector regulations would enable an accounting treatment that is also
consistent with risk management. In other words, we believe that leaving room for standards to beapplicable based on the regulations of each jurisdiction will enable the financial statements toappropriately reflect the actual situation of the entities.

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For this reason, we recommend that the IASB establish, for example, a new provision in IFRS 9 (orIFRS 17) to allow guarantee contracts to be regarded as financial guarantee contracts in appropriate
cases, even if they also meet the definition of insurance contracts in IFRS 17, in addition to the current
provisions (IFRS 9, paragraph 2.1(e)(iii)) that allow financial guarantee contracts to be regarded as
insurance contracts under certain conditions. This would allow for an accounting treatment consistent
with jurisdictional regulations.

Question 9—Credit risk disclosures(a)

Are there fundamental questions (fatal flaws) about the disclosure requirements in IFRS 7for credit risk? If yes, what are those fundamental questions?

(b)

Are the costs of applying these disclosure requirements and auditing and enforcing theirapplication significantly greater than expected? Are the benefits to users significantly lower
than expected?
If, in your view, the IASB should add specific disclosure requirements for credit risk, please
describe those requirements and explain how they will provide useful information to usersof financial statements.

Response to (a)There is no specific problem with the disclosure requirements of the current IFRS 7 as it works as aframework that sets minimum disclosure requirements and allows entities to determine the granularityof disclosure according to its own circumstances in light of its credit risk disclosure objectives.

Response to (b)As some users of financial statements have argued, the granularity of disclosure may vary between
companies for some requirements as the decision on whether to disclose at a finer granularity than theminimum disclosure requirements set out in accounting standards is based on the requirements orguidance from supervisors and other authorities or the views of external auditors. However, it issufficient to comply with the requirements or guidance from supervisors and other authorities, taking
into account the circumstances of each industry sector, and therefore there is no need to add them tothe disclosure requirements to IFRS 7.
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