July 13, 2017

EBA published a report including qualitative and quantitative observations of its second impact assessment of International Financial Reporting Standard (IFRS) 9. EBA conducted this assessment as part of its own initiative. The second assessment confirmed EBA's initial observations on the stage of preparation for the implementation of IFRS 9 and the estimated impact of IFRS 9 on regulatory own funds.

The second EBA exercise builds on the objectives of the first exercise, namely gaining a better understanding of the stage of preparation for the implementation of the standard, the estimated impact of IFRS 9 on regulatory own funds, the interaction between IFRS 9 and other prudential requirements, and implementation issues related to IFRS 9. The second exercise included questions that focused on more specific aspects of the main topics covered in the first impact assessment. Also, in the medium and long term, EBA is interested in achieving a better understanding of how the differences in the implementation of IFRS 9 may affect the measurement of expected credit losses.

 

On the qualitative side, the report highlighted progress made by banks on the implementation of IFRS 9 since the previous exercise. The assessment found that smaller banks are still lagging behind in their preparation compared with larger banks. The report also noted that banks have reduced their plans for parallel runs of IFRS 9 and International Accounting Standard 39 (IAS 39). Banks will use various data, processes, and models to estimate expected credit losses. On the quantitative side, the responses received show that the estimated impact of IFRS 9 is mainly driven by IFRS 9 impairment requirements. The estimated increase of provisions is on average 13%, compared to the current levels of provisions under IAS 39. Smaller banks, which mainly use the standardized approach for measuring credit risk, estimated a larger impact on own funds ratios than larger banks of the sample.

 

Related Links

Second Impact Assessment of IFRS 9 (PDF)

First Impact Assessment of IFRS 9 (PDF)

Keywords: Europe, EBA, IFRS 9, Banking, Impact Assessment, Report

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