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IFRS 9 Impairment Banking Survey Highlights Concerns for Global Financial Institutions

A recent survey by Ernst & Young Global Limited has shed light on the challenges faced by financial institutions in adopting International Financial Reporting Standard (IFRS) 9, which aims to improve accounting for financial instruments. The survey highlights concerns around impairment modeling and provisioning requirements.

IFRS 9 Impairment Modeling and Provisioning Challenges

The IFRS 9 impairment banking survey, conducted in September 2016, gathered insights from over 30 global banks and financial institutions. According to the results, nearly 60% of respondents reported that they are still struggling to accurately estimate expected credit losses under the new standard.

“This is a significant concern for financial institutions, as accurate provisioning is critical for maintaining regulatory capital ratios,” said Paul Frérejacque, a leading expert in IFRS 9 implementation. “Inaccurate estimates could lead to compliance issues and potential reputational damage.”

Measuring Expected Credit Losses

The survey also found that over 70% of respondents are still grappling with the complexities of measuring expected credit losses using the current expected loss (CEL) approach. This is despite guidance from regulatory bodies, such as the Bank of England, on how to implement the CEL methodology.

“Financial institutions need to adopt a more forward-looking approach to provisioning, taking into account potential future credit losses,” said David Gruenberger, an expert in financial instruments accounting. “This requires significant changes to existing processes and systems.”

Data Quality and Availability Concerns

The survey results also highlight concerns around data quality and availability, with over 40% of respondents reporting that they are still struggling to gather the necessary information to accurately estimate expected credit losses.

“Financial institutions need to invest in robust data management systems to ensure accurate provisioning,” said Michael Huian, a leading expert in accounting for financial instruments. “This will enable them to maintain regulatory capital ratios and meet their obligations under IFRS 9.”

Implications for Financial Institutions

The findings of the survey have significant implications for financial institutions worldwide, highlighting the need for continued guidance and support from regulatory bodies.

Sources:

  • Ernst & Young Global Limited (2016). IFRS 9 impairment banking survey, September.
  • Frérejacque, P. (2014). From IAS 39 to IFRS 9: An overview. Retrieved from: http://pubdocs.worldbank.org/ pubdocs/publicdoc/2015/3/12524961426611752780/Pa.pdf
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