CECL model – group provisioning for credit losses

Implementing new rules for calculating group provisioning for credit losses, based on the CECL model. HMS offers assistance to banks and to credit facilitating bodies for implementing these rules in accordance with the Bank of Israel’s requirements.

Following a new standard published by the American Financial Accounting Standards Board (FASB) in June 2016 regarding Credit Losses in Financial Instruments (ASU 2016-13) – the Bank of Israel directed the banks in Israel to speedily prepare regarding this matter. Adequate preparation should involve the gathering of any relevant data, which is to include, inter alia, the attributes of each loan, the date on which the loan is created, a specification of loan dates and amounts, any controls exercised on changes in classification, debt restructuring, write-offs and the collection of amounts which have been written-off.

  • The new standard significantly changes the accounting methods for handling credit losses recognition and measuring. In accordance with the new approach and following the new CECL (Current Expected Credit Loss) model, immediate recognition of predicted credit losses throughout the financial assets’ lifetime is to begin upon the creation/purchase of the asset. The standard may have far reaching implications on the financial reports of  banks and other credit facilitating bodies, due to the expected significant increase of group provisioning in cases of credit loss. The standard will apply to public companies reporting to SEC, coming into effect commencing on 2020.
  • The implications of this on information system for the management of credit risk may be far reaching, due to database penetration, the application of new data analysis technics which are based on the credit facilitating date (Vintage), and the use of new models for the carrying out of long and short term projections.
  • HMS offers assistance to banks and to credit facilitating bodies in implementing all this in accordance with the Bank of Israel’s requirements. HMS has the required know-how for doing this, as well as accumulated experience in applying group-based debt repayment orders in the field of Banking. HMS is currently guiding a Banking group through implementing the new CECL model.   HMS is vastly experienced and is well familiar with the financial information systems used by banks and by most credit facilitating bodies in the Israeli market.
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