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Accounting treatment of the payment moratorium

Accounting treatment of the payment moratorium



Ágnes Rakó


KPMG Tanácsadó Kft.


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According to IFRS standards banks have to carry out modification assessments on loans affected by the payment moratorium, based on the estimation of debtors expected decisions on entering into payment moratorium. The gross carrying amounts of the loans most be recalculated by discounting the modified contractual cash flows using the EIR before modification.

If the change in net present value of the cash-flows is significant then a loan must be derecognized and re-recognised as a new financial asset. This means that the new asset is initially measured at its fair value. If the change is not significant, then the impact must be recognized in the gross carrying amount. In both case the modification has impact on profit and loss.

To calculate the change of the net present value of the cash-flows the cash-flow movements need to be split into components and the impact can be estimated for each components. According to the sample calculations the payment moratorium will not result in derecognition for the vast majority of the Hungarian banks’ loan portfolios but they will suffer losses on the changes in the net present value of the loans caused by cash-flow modifications.

Generally, interest revenue and expense are calculated by applying the EIR to the gross carrying amount of a loan regardless of expected date of interest cash-flows unless the loan impaired based on an objective evidence of credit risk increase. In short run the repayment moratorium will have minor impact on interest income of the Hungarian banking sector.

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