LO 73.3: Assess the progress banks have made in the implementation of the standards.
The IASB standard is effective as of January 1, 2018 (although early adoption is allowed) and the FASB standard as of January 1, 2020 for public companies and January 1, 2021 for all other applicable entities.
Based on surveys conducted with banks regarding the implementation of IFRS 9, overall it appears that only minimal progress has been made as of 2016. For example, a significant number of banks were unable to quantify the impact of the new standard. For the banks that were able to make estimates, loan loss provision increases were estimated at an average of 20%, with the range typically being between 10% and 30%. A large portion of the increase is due to the recording of lifetime ECL for stage 2 loans. The amounts are not as significant for the related capital decreases [i.e., 50bp to 73bp decrease in Common Equity Tier 1 (CETl) spread and total capital ratio], but the key issue here is that the banks are generally unaware of how regulators will ultimately revise the regulatory capital amounts.
The Enhanced Disclosure Task Force (EDTF) has recommended specific risk disclosure by banks in the transition period prior to implementation of IFRS 9. The disclosures are qualitative (i.e., differences from current approach, implementation strategy, capital planning impact), but also include quantitative assessments of the impact of using the ECL approach. From the surveys, about 40% of the banks had no intention to make any quantitative disclosures prior to 2018.
A takeaway from the surveys is that for many banks, there are currently weaknesses in general data quality and the computation of lifetime default probabilities for loans. Improvements in the modelling processes are required as well. To date, there has been limited spending by most banks regarding IFRS 9 implementation. Specifically, many banks reported that they had insufficient technical resources to complete the implementation. Furthermore, to date there appears to have been limited involvement of key personnel such as the board of directors and senior credit risk staff.
2018 Kaplan, Inc.
Page 167
Topic 73 Cross Reference to GARP Assigned Reading – Cohen and Edwards
Im pa c t o f IASB a n d FASB St a n d a r d s