IFRS 9 EBA update alert
EBA updates on the IFRS9 impact on EU banks, and raises red flags on smaller banks
Banking alert | 6 July 2017
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The European Banking Authority (EBA) recently published a report of qualitative and quantitative observations from its second IFRS 9 impact assessment exercise. This exercise, which follows up on the first impact assessment published in November 2016, confirms the EBA's initial observations on IFRS 9 preparation and the estimated impact of IFRS 9 on regulatory own funds.
- The Report highlights that smaller banks still lag behind in their preparation for IFRS 9 compared with larger banks.
- The report highlight a concern around comparability of disclosures, since banks will use various data, processes and models to estimate expected credit losses.
- The estimated increase in impairment provisions is on average 13% compared to the current levels of provisions under IAS 39.
- CET1 ratios are expected to decrease on average by up to 45 basis points (bps).
- It is estimated that total capital ratios will decrease, on average, by 35 bps.
- Smaller banks, which mainly use the Standardised Approach (SA) for measuring credit risk, estimated a larger impact on own funds ratios than larger banks of the sample.
Additionally, the EBA is concerned that some banks are not planning to undertake any parallel run before IFRS 9 enters into force, and therefore encourages these banks to carry out intensive testing of their IFRS 9 processes and approaches, particularly those relating to the implementation of the impairment requirements of IFRS 9.
In addition, the EBA also launched a public consultation on its guidelines on uniform disclosure of IFRS 9 transitional arrangements to ensure institutions' Pillar 3 disclosures on capital and leverage ratios are consistent across the EU during the transitional period.
Report on results from the second EBA impact assessment of IFRS 9
Download the report (PDF)
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