IFRS 9 changes hit banks as capital requirements increase

Despite the potentially significant impact for banks of new rules on accounting for losses, which are due to be implemented as part of IFRS 9, Financial Instruments, one in four bank boards have little or no awareness of the forthcoming changes, according to research by Deloitte.

Over half of banks surveyed about their views on the new IFRS 9 loss accounting rules, which the International Accounting Standards Board (IASB) is to issue shortly, say these will increase loan loss provisions by up to 50%, according to Deloitte’s global IFRS banking survey.

In addition, 70% of banks 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, considerably more than the 9% who reported this in 2011.

However, despite this, nearly a quarter of boards 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.’

The survey also suggested that balance sheet comparability is causing some concern, with 45% stating it will be more difficult to compare loan loss provisioning in banks’ financial statements. In addition, demand for transparency around credit risk is increasing, as investors and regulators want to understand the details of banks’ risks.

However, Deloitte says banks are reporting implementation challenges in meeting these needs, as their focus shifts from the technical aspects of the standard to the practical implications. Coordinating finance, credit and risk resources is a major concern, and IT changes will be required to support new measurement and disclosure requirements.

Rhys said: ‘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. 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.’

The research was based on responsees from 54 global banking groups from Europe, the Middle East and Africa, Asia Pacific and the Americas.


Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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