Maximum exposure and collateral

Learning objectives

• Explain that the maximum exposure is disclosed before taking account of any collateral held, which is described separately.L2
• Calculate the net exposure after collateral from the maximum exposure and the value of the collateral limited to the exposure.L3

Normative references

• IFRS 7 §35KFor instruments within the impairment requirements of IFRS 9, the entity discloses by class the amount that best represents its maximum exposure to credit risk at the end of the reporting period, without taking account of any collateral held or other credit enhancements, a description of collateral and credit enhancements (nature, quality, significant changes, instruments with no loss allowance because of collateral) and quantitative information about the collateral held for credit-impaired assets at the reporting date.
• IFRS 7 §36For financial instruments within the scope of the Standard but not subject to the impairment requirements of IFRS 9, the entity discloses by class the amount that best represents its maximum exposure to credit risk at the end of the reporting period, without taking account of collateral or other credit enhancements (unless the carrying amount already represents that exposure), and a description of collateral and credit enhancements and their financial effect; items (c) and (d) have been deleted.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Tanit Banque SA has granted loans for a total of 2,000,000, secured by mortgages worth 1,500,000 (case facts). What amount does it present as the maximum exposure to credit risk, under the IFRS 7 rule?L2
• Tanit Banque SA has two loans. Loan X: maximum exposure {exposure_x}, collateral held worth {collateral_x}. Loan Y: maximum exposure {exposure_y}, collateral held worth {collateral_y}. To measure the net exposure, the value of collateral taken into account for a loan is capped at the exposure of that loan (case data; supplementary information, the maximum exposure itself remaining stated before collateral). Calculate the net exposure after collateral for X, for Y, then the total.L3
• Nereid SA holds a bond measured at fair value through profit or loss, an instrument within the scope of IFRS 7 but not subject to the impairment requirements of IFRS 9; its carrying amount, 2,000,000, represents its maximum exposure to credit risk at the reporting date. The bond is secured by a pledge of 1,500,000 (case data). What does Nereid disclose?L2