Implications for Equity and Debt Investors

Adrian Docherty

Forward-looking provisioning is meant to be a positive development for the market, to address the perceived problem of loan-loss provisions coming “too little, too late” and market distrust of numbers based on tardy, incurred loss accounting. This chapter explores how market participants view the new accounting rules for ECL provisions and whether the changes are likely to have the intended positive impact on markets. It also considers how equity and debt investors might prepare for, and deal with, the new accounting regimes.


Accounting information is crucial to the understanding of an entity’s financial situation. It alters our perception of the underlying reality – to some extent, it becomes the reality. And, occasionally, this reality can be so harsh that it causes failure of a bank due to low reported solvency levels. Accounts are not merely numbers.

A real incarnation of accounting numbers can be observed when people talk about loan losses. For many market participants, the point of provisioning in the accounts is considered to be the point of actual loss. Forward-looking provisions that feature in the income statement and in the

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