IFRS IC publishes final agenda decision on TLTRO III programme

Keywords: Mazars, Thailand, IFRS, IFRS IC, TLTRO III, IAS, ECB, EIR

23 May 2022

This is available here.

The programme was put in place in 2019 by the European Central Bank (ECB) following two similar programmes launched in 2014 and 2016. They aim is to stimulate lending to households (except for property loans) and non-financial corporations by offering attractive refinancing interest rates, provided that the bank reaches a certain minimum growth rate in the amount of such loans over a given period.

In this context, the IFRS IC decision focused primarily on the following topics:

• whether or not the benefit of the favourable interest rates should be treated as a government grant under IAS 20, either on initial recognition or subsequently;
• how to calculate the effective interest rate (EIR) on initial recognition and when revising estimates subsequently:
  • either because the bank has revised its assessment of whether the performance conditions have been met;
  • or because the ECB has decided to change its rates for the programme.

As regards whether such loans should be treated as government grants under IAS 20, the IFRS IC notes that the two following conditions must be met:

• the bank must conclude that the ECB meets the definition of a government agency or similar body; and
• either the interest rates offered by the ECB are below-market interest rates at the transaction date, or the loan is a forgivable loan.

The IFRS IC concluded that these judgements lay beyond its remit and must be assessed by each bank with regard to the specific facts and circumstances. However, the Committee noted that a grant, when corresponding to a below-market rate, can be recognised only at initial recognition, whereas subsequent recognition of the financial liability falls under the scope of IFRS 9.

As regards how the EIR should reflect the conditionality relating to both the bank’s loan performance and subsequent interest rate changes by the ECB: the IFRS IC noted that this is part of a broader issue that should be tackled in the Post-implementation Review of the classification and measurement phase of IFRS 9, which is currently under way. It thus made no further comments at this stage.

The IFRS IC also noted that banks must provide disclosures in the notes on their main judgements and estimates and their choices of accounting policy, in accordance with IAS 1 and (for financial instruments) IFRS 7.

Eight out of fourteen Committee members voted in favour of the tentative agenda decision. The Committee will not carry out a standard-setting project on this topic, and will refer the issues relating to the EIR to the Post-implementation Review of IFRS 9, currently being carried out by the IASB.