Circular Letter No. CC/2020/00000036

Subject: "Guidance" on the use of macroeconomic projections in determining estimates of expected credit losses, in the context of the application of IFRS 9, during the period characterized by the COVID-19 pandemic

The European Central Bank (ECB) published, on 1 April, a "Guidance" on the use of projections in determining estimates of expected credit losses, in the context of the application of International Financial Reporting Standard 9 "Financial Instruments" (IFRS 9), during the period characterized by the COVID-19 pandemic (hereinafter referred to as "Guidance"), which is addressed to significant credit institutions. This "Guidance" can be consulted on the ECB's website1 .

Banco de Portugal considers that that "Guidance" should also be followed by the other entities that apply IFRS 9 in the preparation of their financial statements, under Banco de Portugal Notice No. 5/2015, of 7 December.

That "Guidance" establishes references on the use of macroeconomic projections to avoid the use of overly procyclical assumptions in determining estimates of expected credit losses, taking into account the current context of greater uncertainty and very limited availability of reasonable and sustainable forward-looking information on the impact of the COVID-19 pandemic. In particular, the aforementioned "Guidance" covers: i) collective assessment of the significant increase in credit risk; ii) use of long-term macroeconomic projections; and iii) use of macroeconomic projections for specific years.

This "Guidance" should be understood in the context of part C of Circular Letter No. CC/2020/0000021.

[1] https://www.bankingsupervision.europa.eu/press/letterstobanks/shared/pdf/2020/ssm.2020_letter_IFRS_9_in_ the_context_of_the_coronavirus_COVID-19_pandemic.en.pdf?b543f9408a8480e04748a3b0185d8cf3

Sent to:
Credit Institutions; Investment Firms; Financial Companies; Holding Companies; Payment Institutions and Electronic Money Institutions.

Mod. 99999924/T – 01/14