Fitch Ratings says that a likely accounting rule change requiring U.S. banks to book loan losses sooner will impact bank financials, but not their credit ratings.
In late December, the U.S. Financial Accounting Standards Board and the International Accounting Standards Board agreed on a draft proposal that would see banks required to book projected loan losses for the next 12 months, instead of recording losses after they have actually occurred. A formal proposal is expected in 2012, the rating agency notes.
“We believe if implemented, the proposed rule would bring greater clarity to bank financial statements as it is forward looking and recognition of exposure is certainly encouraged,” Fitch says, noting that the change would also have a gradual effect on US bank income statements.
“In theory, the suggested change would give banks more time to replenish capital cushions by setting aside reserves as a result of projected loan losses, insulating investors. However, we do not believe the proposed changes will have any impact on the ratings of U.S. banks,” it says.
Fitch also notes that while accounting rule changes, and other regulatory reforms, heighten uncertainty, “banks have been aggressive in responding earlier to reform suggestions as they have been afforded ample time to do so.”
Additionally, Fitch says that FASB will not change balance sheet offsetting rules, “effectively preserving the single largest balance sheet difference between financial institutions filing under the IFRS framework and U.S. GAAP. However, new common disclosure rules for both regimes provide the necessary information to make adjustments for comparability.”