Objective

1. The objective of this paper is to set out supervisory guidance on sound credit risk practices associated with the implementation and ongoing application of expected credit loss (ECL) accounting frameworks. The scope of credit risk practices for this guidance is limited to those practices affecting the assessment and measurement of expected credit losses and allowances under the applicable accounting framework. As used in this paper, the term "allowances" includes allowances on loans, and allowances or provisions on loan commitments and financial guarantee contracts. [See paragraphs 10–11 for further discussion on scope.]

2. In June 2006, the Basel Committee on Banking Supervision ("the Committee") issued supervisory guidance on Sound credit risk assessment and valuation for loans to address how common data and processes may be used for credit risk assessment, accounting and capital adequacy purposes and to highlight provisioning concepts that are consistent in prudential and accounting frameworks. [Available at www.bis.org/publ/bcbs126.pdf.] This document replaces the Committee's June 2006 guidance.