ASSESSING COMMERCIAL BANK RESERVE ADEQUACY THROUGH THE DECOMPOSITION OF THE PRUDENTIAL–IFRS 9 COVERAGE GAP
DOI:
https://doi.org/10.5281/zenodo.23308852Abstract
In Uzbekistan, loan loss reserves are formed in parallel under the Central Bank’s prudential rates and the IFRS 9 expected credit loss model, while a systematic assessment of the reserve gap between the two frameworks and its components remains insufficiently developed in the studies reviewed. The article proposes a methodology for assessing reserve adequacy based on the coverage gap G — the difference between the two regimes’ reserve needs as a share of gross loans — which decomposes exactly into a classification component (Δc · c₃) and a provisioning component (sₙₚₗ · Δr), with perimeter rules, a three-zone scale, and a gap-to-net-profit ratio. For the banking system as of 1 January 2024, the narrow-perimeter gap was 1.85–3.41 pp of loans (UZS 8.7–16.1 trillion, or 125–230% of 2024 net profit), of which 63–78% was attributable to the classification component. Under the specified scenarios, classification differences account for the larger share of the estimated gap.Keywords
coverage gap, reserve adequacy, IFRS 9, expected credit losses, asset classification, non-performing loans, prudential regulationReferences
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