IFRS 9 and CECL Impairment Calculation

Understand how IFRS 9 and CECL affects your bank’s impairment, capital ratio, and capital planning

The new standards for IFRS 9 and CECL influences banks’ financial statements, with impairment calculations the most affected. It goes beyond a pure accountancy calculation and is linked to a broader regulatory context, with an impact on numerous stakeholders in the bank, including capital and strategic planning, treasury, budgeting and loan origination.

The new credit impairment models align measurement of financial assets with the bank’s business model, contractual cash flow characteristics of instruments, and future economic scenarios. As with stress testing and scenario analysis for capital planning, the IFRS 9 and CECL impairment calculations rely on a forward-looking assessment, rather than incurred loss calculation. As a result, these changes have an impact on the capital requirements of banks and the volatility of capital.