November 24, 2017

ECB published a thematic report that assesses the preparedness of institutions for implementation of IFRS 9. The report also outlines key supervisory expectations for the ongoing implementation and application of IFRS 9. The supervisory expectations considered in this thematic review are consistent with the international best practices and supervisory guidance issued by BCBS and EBA. IFRS 9 replaces IAS 39 and enters into force on January 01, 2018.

This report presents the first quantitative and qualitative results of the thematic review on IFRS 9 for significant institutions (Sis) and less significant institutions (LSIs) within the Single Supervisory Mechanism, or SSM, framework. The scope of this supervisory exercise encompasses 106 SIs that prepare their financial statements in accordance with IFRS at the highest level of consolidation and are directly supervised by ECB. Additionally, the thematic review for LSIs was performed on a sample of 77 institutions in close collaboration between ECB Banking Supervision and the national competent authorities. This thematic review is a further step toward the consistent implementation of the IFRS 9 standard across banks in the euro area.

Overall, the review concludes that, for some institutions, there is still room for improvement if a high-quality implementation of IFRS 9 is to be achieved. Supervisors have noted that the largest SIs are more advanced in their preparation than the smaller SIs. The aspect considered to be the most challenging is impairment measurement, which requires significant changes to the institutions’ internal processes and systems. However, institutions also encountered challenges with the classification and measurement of financial instruments. In many cases there is still room for aligning the accounting definitions with the regulatory definitions. Furthermore, institutions are still in the process of incorporating the EBA guidelines on ECL into their policies and procedures. Results of the thematic review were considered in the Supervisory Review and Evaluation Process (SREP) 2017. Based on information reported by banks under direct ECB supervision that were better prepared in the first quarter of 2017 to implement IFRS 9 (and thus provided the most reliable data), the fully loaded average negative impact on the regulatory common equity tier 1 (CET1) ratio is estimated to be 40 basis points. From the data reported by the LSIs that were better prepared in the first quarter of 2017, the fully loaded average negative impact on the regulatory CET1 ratio is estimated to be 59 basis points. 

 

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Keywords: Europe, EU, Banking, IFRS 9, SI, LSI, SSM, SREP, ECB

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