The Securities and Exchange Commission published today (Monday) a position paper intended for companies in the non-bank credit industry, with the aim of strengthening the disclosure standard given in relation to credit risk, which is a primary exposure for these corporations. The non-bank credit companies are actually required to expand the disclosure regarding credit risks.
The timing of the announcement follows on from a similar instruction given last July, while in the background more and more companies in the economy are running into difficulties in the shadow of the interest rate hikes made since the beginning of the year and after a decade of zero interest rates.
The authority’s staff emphasizes the centrality of credit risk in the activity of a company dealing in the field of non-bank credit, and accordingly the importance of disclosure and proper application of the relevant accounting standards on the subject. Among these emphases, the authority’s staff emphasizes that as part of the disclosure, companies are required to separate the company’s debts that have not yet reached their repayment date and companies that have reached their repayment date and have not yet been repaid, even if the debt is redistributed.
Also, as part of the disclosure about concentrations of credit risks, a company is required to examine its exposure to individual borrowers, even if these borrowers borrowed from the company through different corporations they own.
In addition, in relation to the segmentation that a company is required to present regarding credit risk levels, the Authority’s staff believes that a non-bank credit company is required to present in its financial statements a credit recovery report (credit segmentation according to delinquency periods) or alternatively describe why it does not regularly report on credit recovery to the key people in management and the board of directors in the company, unless the company uses and presents in the financial statements another index for the purpose of segmenting credit risk levels that can strengthen the investors’ understanding of this key risk.
This position joins the announcement of the staff published last July on the subject following events that occurred in the elections of Unite Credit Yasbihing Holdings in order to highlight to the public the risks of its investment in the field of non-bank credit.