Transitioning To IFRS 9: Reporting On Funds

IFRS 9 is here! Applicable since 1 January 2018, the new reporting standard seeks to ensure the solvency health of banks.

The European Parliament has amended Regulation No. 575/2013 to cater for the impact of IFRS 9 on the funds of banks. The most significant impact anticipated by the banking industry and their regulators is the shift in loss recognition method, from the incurred loss model to the expected loss model (ELM). Given the significance of this shift, the European Parliament has introduced transitional arrangements that allow banks to include, in their Common Equity Tier 1 capital ratio (CER), a portion of the additional provision calculated with the ELM. Additional relief is allowed for banks affected by worsening macro-economic factors.

Some key features of the transitional arrangements are outlined below:

The transitional period is allowed for a maximum period of 5 years, i.e. from 2018 to the end of 2022. Banks that choose to adopt this option for their regulatory reporting will need to inform their respective regulators. Banks are required to eliminate the effect of this transition from their CER by the end of this transitional period. Banks are required to publicly disclose their own funds, capital...