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Banks’ loan loss provisioning could jump by half under IFRS 9

19 June 2014

Over half of banks surveyed believe the new IFRS 9 expected loss accounting rules – anticipated to be issued shortly by the IASB - will increase loan loss provisions by up to 50%, according to Deloitte.

Seventy percent of banks in Deloitte’s Fourth Global IFRS Banking Survey expect these new provisions to exceed current regulatory measures, potentially increasing the amount of capital that banks will need to hold.

This capital requirement could drive up the cost of certain product lines, with 56% stating that the pricing of lending will be affected, up from just 9% in 2011. Despite this, nearly a quarter of boards are considered to have little or no awareness of the forthcoming change.

Mark Rhys, global IFRS banking partner at Deloitte, said: “Bank boards are dealing with a mass of regulatory initiatives, many of which require immediate action.With IFRS 9 still three years away, the proposals do not yet command attention.”

Balance sheet comparability is also causing some concern, with 45% stating it will be more difficult to compare loan loss provisioning in banks’ financial statements. Demand for transparency around credit risk is also increasing, as a need to understand the details of banks’ risks has grown amongst investors and regulators. However, banks see implementation challenges meeting these needs.

Rhys said: “A variety of legacy risk and accounting systems are found in many banks.The sheer range of systems can make it difficult to reconcile data extracted from different sources; something that is compounded when the data quality is poor.

“Banks’ focus is shifting from the technical aspects of the standard to the practical implications of implementing IFRS 9.Coordinating finance, credit and risk resources is a major concern, and IT changes will be required to support new measurement and disclosure requirements. Three years is most frequently cited as the necessary lead time for all phases of IFRS 9.  A 2018 effective date will put teams under pressure: work must get under way soon.”

End

About the survey
Deloitte’s research takes into account views from 54 banks from Europe, the Middle East & Africa, Asia Pacific and the Americas. Responses were received from 14 of the 29 global systemically important financial institutions determined by the Financial Stability Board, including 11 of the 17 IFRS reporters. Altogether, 25 of the top 50 global banking groups measured by total assets listed in the Banker Top 1000 World Banks 2013 took part.

Notes to editors

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

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