We Analysed The First IFRS 9 Disclosures By Banks

IFRS 9 has been effective since 1 January. With some of the world's major listed banks now issuing their financial reports, we are interested in how they have implemented the new requirements.

IFRS 9 was always going to have a material—some said significant—impact on banks' financial statements and business processes, both quantitatively and qualitatively. Indeed, it completely changed how impairment losses were measured, necessitating new expert judgement. In this article we'll look the first news of its real effects.

From a quantitative perspective

In 2017, the European Banking Authority (EBA) predicted that IFRS 9 would have a negative impact on the Common Equity Tier 1 (CET 1) of 45 bps.

After analysing the financial accounts of 30 banks who have already issued their IFRS 9 statements, we found CET 1 down by about 21 bps in total (taking into account, additionally, some European banks that reported an average negative impact of 27 bps).

This impact is less severe than anticipated, which is good news. For most banks, the costs have been absorbed by their existing buffers. So far, disclosures have mostly related to the transitional approach and impact areas, as well as shareholder fund implications.

As the year-end of most Canadian banks is in October, they have been pioneers in IFRS 9. After looking closely at their Q1 reports, we have found the following disclosures published:

how accounting policies have changed upon IFRS 9 adoption how the opening IFRS 9 numbers reconcile with the closing IAS 39 balance sheet—showing separately how assets and liabilities moved between different measurement categories and how measurements changed how the opening IFRS 9 ECL allowances reconcile with the closing IAS 39 loss allowances, in total and per class of financial instrument how designation options have been used: upon adopting IFRS 9, designations have been included of debt instruments as at FVTPL and equity securities at FVOCI Additionally, some UK banks have issued transition packs alongside their financial reports, including lots of qualitative and quantitative information. We have prepared a summary of what could be included in such a pack.

One point of interest is a loan analysis done by categorising loans into one of three stages, so as to determine both the amount of expected credit loss (ECL) and the interest income to be recognised. This is the basis for measuring impairment under the new requirements.

We have also analysed the loan...

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