QUESTION 17 X Inc commits to grant a 5 years maturity loan to Y Inc amounting to $ 200 Million. This loan commitment is outside the scope of IFRS 9. X Inc should apply IAS 37, Provision, contingent Liabilities and Contingent Assets to loan commitments that are not within the scope of IFRS 9. But if there is a commitment to grant or take a loan at a specified rate, will it become financial derivative to which IAS 32, IFRS 9 and IFRS 7 will apply?

A commitment to grant or take a loan at a specified rate would not necessarily become a financial derivative. It would depend on the specific terms and conditions of the commitment.

If the loan commitment meets the definition of a derivative under IAS 39, then it would be subject to the requirements of IAS 32, IFRS 9 and IFRS 7. To be considered a derivative, the commitment would need to have all of the following characteristics:

  1. Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (referred to as the "underlying").
  2. The transaction requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
  3. It is settled at a future date.

If the loan commitment does not meet all of the above characteristics, then it would not be considered a derivative and would not be subject to the requirements of IAS 32, IFRS 9 and IFRS 7.

However, if the loan commitment does not meet the definition of a derivative, but the lender or borrower intends to sell or securitize the loan asset resulting from the loan commitment shortly after the origination, then the loan asset may still be subject to the requirements of IFRS 9 and IFRS 7. This would depend on the specific facts and circumstances of the transaction.

Without more information about the specific terms of the loan commitment in question, it is not possible to determine whether it would be considered a derivative under IAS 39.

NOTE: The fair value of the loan commitment, which is $7.39 million, would be recognized as a financial asset under IAS 32 and IFRS 9 if it meets the definition of a derivative. Since the loan commitment has a specified rate, it would likely be classified as a derivative and therefore recognized as a financial asset. However, it is important to note that loan commitments that are not within the scope of IFRS 9 are accounted for under IAS 37, and not IFRS 9.

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