What are loan commitments? Loan commitments are commitments to provide credit, in the form of a loan, under pre-specified terms and conditions.
The existing GRAP 104 on Financial Instruments (2009) – which entities will apply when preparing their 2023/24 and 2024/25 financial statements – scopes out loan commitments, except for the derecognition and disclosure requirements.
What will change?
GRAP 104 (revised 2019) changes the scope for loan commitments. These changes apply from 1 April 2025 for the 2025/26 year. The Secretariat developed a flow chart to assist entities in understanding the new requirements. This can be accessed on the ASB website here.
Scope of GRAP 104 (revised 2019)
The flow chart explains the scope of GRAP 104 (revised 2019) as follows:
As illustrated in the diagram some loan commitments are in scope of GRAP 104 (revised 2019), while others would apply the impairment requirements of GRAP 104 (revised 2019). As before, the derecognition and disclosure requirements of GRAP 104 apply to all loan commitments.
Loan commitments on below market terms, including concessionary loans
In the public sector, entities do not always transact on market terms. Entities provide concessionary loans to other entities for public policy reasons and loan commitments are sometimes provided in a non-exchange transaction, i.e. the entity providing the loan commitment does not charge a fee or the fee is not market-related.
The second part of the flow chart explains the accounting treatment for loan commitments on below market terms:
Other resources
For further guidance on loan commitments, refer to this fact sheet on the ASB website.
Disclaimer
The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.