Financial Loans Cost or Fair Value, Which One Has More Effect on Credit Loss of Banking System

​International Financial Reporting Standards (IFRS) 13 (fair value measurement) and IFRS 9 (credit loss discount estimate) have allowed financial institutions to report their financial assets and liabilities based on fair value. For banks, the bank facility is one of the financial assets that can be reported by fair value. Disclosure and reporting of cost or fair value of banks facilities as a part of banks financial assets and effect of each method on banks credit loss and risk is one of the significant issues that has always been discussed. Since 1990, the first standard in this area has been issued, the topic, was discussed by academic and professional bodies.the suggestions results show that there are different opinions about using the fair value method. In this paper, we use cost data extracted from the financial statements of 23 Iranian banks the period of 2007-2015 and estimate their fair value of loans. we examine effects of their fair value and cost on banking credit loss. To estimate the fair value, we used cash flow discount model proposed by Federal Reserve of America. The results for Iranian banking system show that the cost of loans method in comparison with the fair value method is better in forecasting banks credit loss