Securitisation: reducing risk and accounting volatility

IFRS 9 and significant risk transfer

This paper examines how securitisation might be used to mitigate the impact of IFRS 9 provisions, as well as reducing risk weighted assets and improving a bank's leverage ratio.

Paper Abstract

The introduction of IFRS 9 ushered in a change from incurred loss provisions to expected loss provisions. While this has not changed the overall lifetime quantum of provisions, it will lead to earlier recognition in the economic cycle, as well as increased volatility in provisioning.

In this paper we outline how the accounting volatility of IFRS 9 provisioning might be mitigated using synthetic securitisation. Such structures might also be used to reduce risk weighted assets where significant risk transfer can be demonstrated. In addition, depending on the structure, a degree of accounting de-recognition may also be achievable, which could improve a bank’s leverage ratio.

This paper will be of interest to institutions that are interested in any of the following,

  • Reducing their exposure to IFRS 9 provisions and their associated volatility
  • Reducing their risk weighted assets
  • Improving their leverage ratio

It will also be of interest to banks that structure securitisation transactions as well as potential investors in such transactions.

If you wish to discuss anything in the paper or want to understand how Deloitte could support you in this area please do not hesitate to get in touch with the authors of the paper.

IFRS 9 and significant risk transfer

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