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 Loan portfolio sales and acquisitions are a common way for many banks to rationalise their portfolios. However, these transactions often throw up some potentially complex accounting issues.

When to recognise an acquired loan and at what amount?

IFRS 9 Financial Instruments sets out the general principles for recognising, classifying, and measuring financial assets – e.g. loans. These principles apply for both originated and acquired loans and for certain loan commitments, but how do they apply?
For example, when acquiring a loan or a loan portfolio an acquirer may need to consider the following.

  • The transaction price – does it include compensation for something else?
  • Are other assets acquired as part of a loan portfolio – e.g. customer relationships?
  • Transaction costs – how do you account for costs relating to acquiring the loan?
     

Special considerations for loans that are credit-impaired at acquisition

Specific issues may arise when acquiring a loan that is distressed – i.e. credit-impaired on initial recognition – including how to measure expected credit losses on those loans.

Considering loan commitments and indemnities received

Because acquired loan portfolios often include commitments to provide further loans, an acquirer will need to evaluate these and determine how they should be initially recognised and subsequently measured.

Read our practical guidance

Our updated publication, Loan acquisition accounting (PDF 1.5 MB) considers some of the complex accounting issues that can arise when acquiring a loan directly or through a business combination. It offers practical examples, analysis and insight on the key accounting issues arising on recognition, classification and subsequent measurement of an acquired loan.