The European Banking Authority (EBA) published today a Report including some qualitative and quantitative observations of its first impact assessment of IFRS 9. This exercise, which helped the EBA understand the way in which institutions are preparing for the application of IFRS 9, also contains some recommendations relevant to the observations as well as some future actions, including the interaction of IFRS 9 with existing prudential requirements.
Qualitative and quantitative observations
On the qualitative side, the Report highlights that as of December 2015, when the exercise was launched, banks were, overall, still at an early stage of preparation for the implementation of IFRS 9, although larger banks seemed more advanced. Also, the Report shows that many respondents plan to perform parallel runs to test the implementation of IFRS 9, but this testing may, in some cases, be more limited than originally envisaged. It should also be noted that at the time the exercise was carried-out, banks still needed to make some key accounting policy decisions.
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 18% (and up to 30% for 86% of the respondents) compared to the current levels of provisions under IAS 39. The common equity tier 1 (CET1) ratios are expected to decrease on average by up to 59 basis points (bps) (and up to 75 bps for 79% of the respondents). In limited cases the impact of IFRS 9 could be higher.
Next steps and other EU initiatives
The EBA will closely monitor the implementation by EU institutions of IFRS 9 over time and also encourages banks to continue their efforts towards a high quality implementation of the stand-ard. To this end, the EBA will continue to engage in an on-going dialogue with banks and auditors and welcomes further discussion with stakeholders on aspects relating to interactions with pru-dential requirements.
Following the analysis of the information collected in the first exercise, the EBA is launching a second impact assessment. As banks are expected to have further developed their methodologies towards the implementation of IFRS 9, the new exercise will allow the EBA to better understand the possible impact of IFRS 9 and the way it is being implemented.
In parallel, the European Securities and Markets Authority (ESMA) published today a public statement on issues to be considered when implementing IFRS 9, which highlights both the need for consistent, high-quality implementation of IFRS 9 and the need for transparency on its impact to users of financial statements.