EBA published the initial observations on the post-implementation impact of IFRS 9 on banks in EU. This exercise, which builds on the two pre-implementation impact assessments published in November 2016 and July 2017, is mainly based on data extracted from supervisory reporting by institutions. The initial observations from this exercise are consistent with the forecasts of the second EBA impact assessment report.
The report on IFRS 9 implementation is intended to provide preliminary observations on the first stages of implementation of IFRS 9 while a deeper analysis is still ongoing. Based on the data collected for the sample of banks, the actual negative day-one impact on common equity tier 1, or CET 1, capital (51 bps on simple average compared to 42 bps in the second impact assessment report from July 2017) and increase in provisions (9% on simple average compared to 13% in the second assessment report from July 2017) broadly confirm the previous estimations from the banks. In relation to the use of transitional arrangements mitigating the impact of IFRS 9 on CET 1 capital, the average CET 1 impact resulting from the add-back of provisions for all the banks in the sample applying these transitional arrangements corresponds to 118 bps. The main observations from the report highlight some areas where the EBA thinks further scrutiny is necessary. These include better understanding the drivers for the observed impact on CET 1, the quantitative and qualitative criteria used for transfers between stages, and the use of IFRS 9 transitional arrangements.
EBA notes that the post-implementation review of IFRS 9 is just starting and the effective impact of the standard, closely linked to the current and expected macroeconomic circumstances, as well as its implementation, will need to be reviewed through time. Therefore, EBA has developed a set of indicators using the supervisory reporting data that it intends to monitor on an ongoing basis. EBA will carry out further work on IFRS 9 modeling aspects to better understand the practices followed by banks and to assess which aspects might merit further investigation. Greater attention may be given to banks under the standardized approach, given their lack of modeling experience. As a medium/long-term action, EBA will consider the possibility of conducting a benchmarking exercise, whose objective would be to understand to what extent the use of different methodologies, models, inputs, and scenarios could lead to material inconsistencies in the expected credit loss outcomes between banks. In addition, EBA will continue to closely monitor and follow up on the ongoing work, at the level of BCBS, on the interaction between accounting expected credit loss models and regulatory provisions.
Keywords: Europe, EU, Accounting, Banking, IFRS 9, Expected Credit Loss, CET 1, Credit Risk, EBA
Previous ArticleRBNZ Amends Insurance Solvency Standards for New Zealand
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.