October 7. Item 5 Non performing loans: Report from the moderator of the IMF EDG (Russel Freeman, IMF)
Presentation
The EDG started in July 2002 at the request of ISWGNA. The moderator summarized, based on a 2001 IMF paper (Bloem and Gorter), the different definitions and approaches, and in particular the opposition between SNA (and other economic manuals) and banking and accounting institutions regarding the treatment of non-performing loans. The SNA only records write-offs of loans and not impairment. For the international accounting standard (IAS) a financial asset is impaired if its carrying amount is greater than its recoverable amount, and a corresponding record is made. The moderator underlined that, differently from SNA, the Manual on Monetary and Financial Statistics (MFMS) records provisions for loan losses under Other accounts payable. The IMF background paper recommends that SNA should provide memorandum items on the value of provisions for NPL, suggests a move towards fair value of assets, and the necessity of more criteria on write-offs (presently treated as other volume changes).
Discussion
Several interventions emphasized the importance of reporting the true state of the financial situation (Australia, USA, Canada, IMF?) by recording impairment of loans in the accounts. This will be recognised more and more in government accounts (IFAC-PSC recommendations), and should therefore be treated in the national accounts. Others insisted on the difficulty to implement this as, under the principle of consistency and symmetry of records in national accounts, this could appear to send the wrong message in lowering bad debtor liabilities. The UK proposed that both fair value basis and nominal basis should be referred to. The IMF (L. La Liberté) rejected the criterion of ?tradability?. Korea insisted that the accounts should reflect the economic reality, in particular when supervisory authorities themselves account for non performing loans.
Conclusions: The chairman insisted that the proposal to limit the recommendation to the introduction of memorandum items was made when there was not yet a plan to a full SNA review. He recommended the moderator to extend his proposals, as a window is now open to an extensive SNA review. In particular, the OECD would welcome that a questionnaire, such as the questionnaire developed by the moderator on pension schemes, be disseminated by the moderator of the EDG, in which more extensive changes would be submitted to experts.
Based on an extract from the draft minutes of the OECD NAEM meeting October 7-10, 2003. |
