Most global banks estimate new IFRS 9, Financial Instruments (replacement for IAS 39), rules on credit exposures will result in loan loss provisions increasing by up to 50%, according to research by Deloitte, which also suggests costs and resource requirements are growing
The firm’s 'Fifth Global IFRS Banking Survey: Finding your way' also showed that 85% of banks anticipate their expected credit loss provisions will exceed those calculated under Basel rules, mostly driven by requirements to provide for lifetime expected losses under ‘stage II’.
Deloitte’s research takes into account views from 59 banks from Europe, the Middle East & Africa, Asia Pacific and the Americas (42 of which are IFRS reporters).
Responses were received from 17 of the 30 global systemically important financial institutions (G-SIFIs) determined by the Financial Stability Board, including 12 of the 18 G-SIFIs who are IFRS reporters.
Mark Rhys, Deloitte’s global IFRS banking partner, said: ‘There will be an interesting interaction between capital requirements and provisions, and a lot of this will depend on how bank supervisors interpret and influence how the rules are implemented.
‘The ongoing efforts of bank auditors and regulators will be critical as they seek to encourage consistent quality upon implementation. This is consistent with our survey findings, with two-fifths of respondents stating that banking supervisors would be most influential in interpreting the new rules, while one-third expect auditors to be key.’
The availability of technical resource required for IFRS 9 projects is a concern for banks, particularly given the standard’s effective date of 1 January 2018.
Three-fifths said they do not have enough technical resource to deliver their IFRS 9 projects, while a quarter of these further doubt there will be sufficient skills available in the market to cover any shortfall.
Banks have also indicated that implementation budgets are rising, with total costs doubling in the year since Deloitte’s last survey.