This report delves into the implications of stricter accounting standards, specifically AASB 9, on Australian banks concerning their handling of risky home loans. It highlights the shift from basing provision estimates on incurred losses to an Expected Credit Loss (ECL) model, requiring banks to proactively assess the risk of loans not yet in arrears. The report considers external factors such as potential policy changes like the removal of tax breaks for property investors, which could further impact house prices and bank profitability. It emphasizes the need for banks to thoroughly prepare for these changes by accurately assessing risks associated with future lending decisions and adjusting ECL models for specific regions and property types. The analysis underscores the importance of compliance with the new accounting standards to avoid unexpected write-downs, and recommends that banks manage this process in a timely manner.
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