EBA reports on results of the impact assessment of IFRS 9

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10 Nov, 2016

The European Banking Authority (EBA) has published a first report on the results of its impact assessment of IFRS 9 'Financial Instruments'. For the report, EBA looked at a sample of approximately 50 institutions across the European Union.

The impact assessment looked at qualitative and quantitative aspects and provided the following results:

Qualitative aspects

  • The smaller banks surveyed are lagging behind in their preparation compared to larger banks.
  • The involvement of some key stakeholders in IFRS 9 implementation seems limited at the current stage.
  • Many respondents plan to perform parallel runs to test the implementation of IFRS 9, but it seems that this testing may be more limited than originally envisaged due to there being insufficient time between the completion of the building of the systems and initial application of IFRS 9.
  • Banks are generally looking to leverage off existing definitions, processes, systems, models and data used for regulatory and credit risk management purposes in order to implement IFRS 9 impairment requirements, although new models and/or adjustments to existing models will be necessary.
  • Data quality and availability are the most significant challenges for banks responding to the survey and they expect to use different (internal and external) sources of data.
  • Overall, the impact of the change in classification and measurement requirements does not seem very significant for most banks.
  • The interpretation and application of some key elements of IFRS 9 impairment requirements are challenging and have to be finalised in many cases.
  • Available practical expedients of IFRS 9 will be used by banks.
  • 75% of the banks included in the survey anticipate that IFRS 9 impairment requirements will increase volatility in profit or loss.

Quantitative aspects

  • The total estimated impact of IFRS 9 is mainly driven by the impairment requirements and only to a lesser degree by the classification and measurement requirements of IFRS 9.
  • The estimated change in provisions varies from portfolio to portfolio and different factors could influence the impact of IFRS 9 in percentage terms on own funds.
  • The reclassification of financial instruments between categories may also have an impact on own funds.
  • The estimated increase of provisions compared to the current levels of provisions under IAS 39 is 18% on average and up to 30% for 86% of respondents.
  • In terms of the estimation of the total quantitative impact of IFRS 9, CET1 and total capital ratio are estimated to decrease, on average, by 59 bps and 45 bps respectively.

The full report can be accessed on the EBA website. The EBA also announces that it will be conducting a second exercise to assess the impact at a later point of time, when more reliable and precise information can be provided by respondents as a result of their ongoing efforts to implement IFRS 9.

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