EBA publishes Opinion on transitional arrangements and credit risk adjustments due to the introduction of IFRS 9

The European Banking Authority (EBA) published today an Opinion addressed to the European Commission, Parliament and Council and to all competent authorities across the EU on transitional arrangements and credit risk adjustments to mitigate the effect of the accounting standard IFRS 9 on prudential ratios. The EBA supports the progressive recognition of the initial impact of IFRS 9 from 1 January 2018 until 2021.

 

The EBA Opinion focuses on the main elements that should be considered when designing the transitional arrangements. In particular, the EBA is of the view that no neutralisation of the initial impact of IFRS 9 should be allowed during the phase-in regime, starting as of 1 January 2018 and supports a ‘static' approach for amortising over 4 years the one-off impact of IFRS 9. Institutions, if they wish, may opt to recognise the full impact of IFRS 9 as of day one.

 

In addition, the EBA believes that all IFRS 9 provisions should be considered as specific credit risk adjustments in the context of the current EBA Regulatory Technical Standards (RTS) on credit risk adjustments  – notwithstanding the fact that amendments or clarifications to the RTS may be needed in the future.

 

The EBA's Opinion builds on the Commission's proposal on transitional arrangements due to IFRS 9 in the context of the CRR/CRD review, as well as on the relevant discussions at the international level (BCBS) .

 

The EBA recently launched a second exercise focusing on the impact of IFRS 9 on regulatory own funds, its interaction with prudential requirements and the progress made by institutions in its implementation. It expects the results to be available in Q2 2017.

The EBA issued this Opinion in accordance with Articles 34(1) and 29(1) of the EBA Founding Regulation, which mandates the Authority to deliver opinions in the areas of its competence.

 

On 30 September 2016, to avoid any sudden unwarranted impact on institutions' capital ratios and lending, the European Parliament issued a resolution for the adoption of IFRS 9, calling for considering the possibility of a phase-in regime for the impairment requirements of IFRS 9 of either three years or until an adequate international solution is in place.

 

In early November 2016, the EBA published a Report presenting the results of its first impact assessment of IFRS 9 and outlining some issues on which it intends to carry out further work. These include among others: a) the the interaction of IFRS 9 with the RTS on Credit Risk adjustments and b) the possible introduction of transitional arrangements.