Within the principles of IFRS 9 financial instruments standard application of expected loss loss model in Turkish banking sector and a research on the effect of banks on profitability management

The aim of this study is to explain the scope of the expected credit loss model introduced by TFRS 9, the principles of application of impairment test, the basic parameters to be used in the calculation of credit loss provisions and the criteria to be used in the classification of financial assets and to analyze the banking applications with the TFRS 9 rudiments, principles set out by the Banking Regulation and Supervision Agency and the principles to be taken into consideration in the application of the TFRS 9 issued by BASEL. In addition, the tendency of the banks in the Turkish banking sector to be shown in a stable manner and the effect of the expected loan loss model on these trends were also included in the study. The principles deemed necessary by the IASB to be prepared in the preparation of the financial statements are defined in the name of International Financial Reporting Standards and the necessary amendments to the standards are also made by the IFRS Interpretation Committee. Similarly, our country has tried to develop on the model of the countries with the intense economic and political relations of accounting standards, in this context, Turkey can ensure the implementation of a single accounting standards set across the International Financial Reporting Standards by the Public Oversight Accounting Committee established in 2011, with the name of Turkey Accounting / Financial Reporting Standards. On the other hand, after the 2008 crisis; financial reporting standards were exposed to intense criticism as the credit loss provisions allocated by financial institutions were insufficient and they were reflected too late in the financial statements. Following these developments, works on accounting for financial assets and the measurement of credit loss provisions by IASB have been accelerated in accordance with International Accounting Standard 39- Financial Instruments: Recognition and Measurement. The classification and measurement phase of the relevant standard was completed by the IASB in 2009, the phase of hedge accounting was completed in 2013, and the phase of provisions which amendments made on various dates since 2009 was completed in 2014. As a result of the updates made in these three phases, the final draft of International Accounting and Reporting Standard 9 was published in July 2014. IFRS 9, which has a significant impact on the banking sector, was issued by the Public Oversight Accounting Committee as TFRS 9 on 07.04.2015 and its effective date is 01.01.2018. In addition to the provisions in TFRS 9, provisions of the Banking Regulation and Supervision Agency (BRSA) have been made in order to make practices in the banking sector uniform. Within this scope, Implementing Regulation on Principles and Procedures for Classification of Loans and Provisions to be Reserved for Them, Guidance on the Calculation of Loan Loss Expected under TFRS 9 and the Notification numbered 2018/1, which contains regulations on the calculation of credit loss expected in accordance with TFRS 9 and guidance on the restructuring of loans, has been prepared. In this study, information is given about the expected loan loss model in the banking sector in the light of the IFRS 9, regulations of BRSA and the principles and principles set out in the Basel Guide, which is taken into consideration in the process of transition to the expected credit loss model by BRSA. It is required to allocate financial assets that are expected under TFRS 9 from the assets that are not covered by the standard and the cash flows of financial assets to be subject to the calculation of the principal credit information, in other words the expected credit loss, as well as the collateral information obtained for the financial assets in question. In addition, in the expected credit loss model, the basic three parameters such as exposure at default, probability of default and loss given default should be calculated by enterprises. The exposure at default is defined as the sum of the cash flows that can be provided from the financial asset in case of default and is equal to the carrying amount of the related financial asset at the reporting date. The default is defined as the fact that the definition and the conditions may vary between the enterprises, and the debtor cannot fulfill the obligations determined by the contract in general, and the probability of default is the possibility that the debtor cannot repay his obligations within a predetermined period of time, in other words, default. Loss given default is defined as the ratio of the loss arising from the default of the receivable registered to the asset of the enterprise to the total receivable at the date of default. The scope of information required to be used in the calculation of expected credit losses is weighted according to the probabilities determined by taking into consideration possible results and is determined as an objective amount, time value of money, past events, current conditions and future economic conditions. As of the reporting date, there is a need to take into account the reasonable and supportable information that can be obtained without incurring excessive costs and effort. In the standard; 12-month expected credit loss is defined as the part of the expected credit losses representing the expected credit losses arising from the possible default of the financial instrument within 12 months after the reporting date. The expected credit loss for life is in the Standard; defined as expected credit losses arising from any default occurring during the expected life of the financial instrument. By using parameters such as exposure at default, probability of default and loss given default mentioned above, it is necessary to calculate the expected loan losses for 12 months and lifetime. One of the most important innovations introduced by TFRS 9 is that future information is also taken into account in the calculation of provisions. In this context, in the process of calculating the expected credit losses, the enterprises should make estimations about the future economic conditions and use these economic variables in the calculation of the provisions. Therefore, it is not sufficient to take into account only the past and current information in the calculation of expected credit losses, and the effects of the events and economic variables expected to occur in the future on the credit losses should also be taken into consideration. In TFRS 9, a three-stage classification model is adopted. Loans which are taken into the financial statements for the first time and which are considered to have no significant increase in credit risk are classified in Stage 1 and expected loss provision is calculated for these loans for 12 months. On the other hand, if the entity believes that there is a significant increase in the credit risk of a receivable between the period in which it was recorded in the financial statements for the first time and the reporting period, considering the reasonable and supportable information, the receivable is classified as Stage 2. Finally, receivables that meet the definition of default determined by the entity are classified as Stage 3. On the other hand, when we look at the Provisions Regulation prepared by BRSA and entered into force on 01.01.2018, the loans are classified under a total of 5 groups, 1 and 2'nd group loans are defined as "Live Receivables", while Group 3 and Group 3 loans are defined as "Non-performing Receivables", and in the definition of these credit groups, reference is made to TFRS 9 and it is considered that the provisions of the Standard and the Provisions Regulation, which the banks are obliged to implement, are consistent. In the classification approach included in TFRS 9, a number of concepts such as significant increase in credit risk and default have a key role. Moreover, in TFRS 9, a number of facilitating practices have been introduced with regard to the classification approach, such as the use of a number of counter-quasi-proven rationalities in the 30-day and 90-day lags and low credit risk exception. On the other hand, in TFRS 9, the definition of basic concepts such as significant increase in credit risk or default are not included and it is aimed that enterprises use a definition of default consistent with the definition they use in risk management practices. On the other hand, it can be seen that in the case of restructuring, banking practice differs from TFRS 9 and more prudent practices are adopted. In the Provisions Regulation, the restructuring is defined as the concessions which are recognized to the debtor due to the financial difficulties that the borrower may face or are not faced with due to the financial difficulties that the debtor may encounter or are not likely to face, and which are subject to restructuring and which do not meet the requirements of the 3'rd Group it is stated that the loans should be classified in Group 2. Finally, in TFRS 9 to assess whether there is a significant increase in the credit risk and to collect the provisions of the financial statements, it is possible to classify the financial instruments and to evaluate them collectively. Income Smoothing is defined as ensuring that the profit figures are reported in normal profit levels by showing the profit in a stable manner, by using accounting principles and by changing the highest and lowest profit levels in profit figures by means of a number of techniques that will affect the profitability of the profit despite the fact that there is no change in cash flows. It has been concluded that there are many studies in which profitability management practices are analyzed both in Turkey and in other countries, and that the banks mainly use provisions in order to show profit in these studies. The credit loss calculations to be performed within the scope of the expected credit loss model require the use of a large number of applications left to the initiative of enterprises. The situation in question raises the possibility that the credit loss provisions to be allocated will be used for different purposes in addition to reflecting the risks exposed to the financial statements. In this context, by taking into account the 18 banking data of the Turkish Banking Sector, which has a total asset of over TL 20 billion as of 31.12.2018 and constitutes 88.57% of the total assets of the Turkish Banking Sector, it has been analyzed the tendency of banks to show the profit in a stable manner and the effect of the expected loan loss model on these trends. In the analyzes carried out through the panel regression model, which was created by using Stata, which is one of the econometric programs, it was found that between the 2009 and 2017 period, when the credit loss model was used, and in the year 2018 when the provision calculations were made within the scope of the expected credit loss model; It is observed that there is a relationship and therefore the provisions in the Turkish Banking Sector are used for profitability management. On the other hand, the relationship between the specific provisions and the net profit for the period before the provisions was observed to be 30,06% between 2009 and 2017 when the credit loss model was used. However, in 2018 when the expected credit loss model was used, the mentioned relationship was realized as 15,49%. This situation shows that, contrary to the expectations in the present study, the transition to the expected credit loss model within the scope of TFRS 9 decreases the tendency of banks to use special provisions for profitability management. It is noteworthy that the data using the expected credit loss model consists of only 4 quarterly data for 2018 and that the economic conjuncture in 2018 may weaken the tendency of the banks to show a stable profit. These factors are the limitations of the present study. Finally, healthier assessments will be made about the overall trend of the expected credit loss model and profitability management practices through research with larger data sets in the future. In addition, in the 3-stage credit class model introduced by TFRS 9, it is considered that the relationships between the classification of credit behavior and the tendency to show a stable profit can be analyzed.