EBA updates on the impact of IFRS9 on the banks across EU and raises red flag on smaller banks

The European Banking Authority (EBA) published today a Report (click here) including some qualitative and quantitative observations of its second impact assessment of IFRS 9. This exercise, which follows up on the first impact assessment published in November 2016, has confirmed the EBA's initial observations on the stage of preparation for the implementation of IFRS 9 and the estimated impact of IFRS 9 on regulatory own funds.

On the qualitative side, the Report highlights that banks have made further progress on the implementation of IFRS 9 since the previous exercise, but smaller banks are still lagging behind in their preparation compared with larger banks.

On the quantitative side, the responses received show that the estimated impact of IFRS 9 is mainly driven by IFRS 9 impairment requirements. The estimated increase of provisions is on average 13% compared to the current levels of provisions under IAS 39. The Common Equity Tier 1 (CET1) ratios are expected to decrease on average by up to 45 basis points (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.

The EBA also launched today 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.

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