The International Accounting Standards Board (IASB)’s IFRS 9 standards will require banks to recognise impairment sooner and estimate lifetime expected losses against a wider spectrum of assets. The implementation of these standards in January 2018 are widely expected to increase the stock of credit impairment provisions and affect profits.
Dear Georgios Vousinas
You have answered yourself your question. IFRS 9 standards will require banks to recognise impairment sooner and estimate lifetime expected losses against a wider spectrum of assets. The implementation of these standards in January 2018 are widely expected to increase the stock of credit impairment provisions and affect profits. But it will disclose the real quality of assets to the stakeholders.
Why don't you check the following article. I think it will be useful in this regard.
Mandatory IFRS adoption and accounting quality of European banks
G Gebhardt, Z Novotny‐Farkas - Journal of business finance …, 2011 - Wiley Online Library
What is left to see is how “stochastic” the estimations on loan losses provisions will be, under the new reporting regime ,and therefore to which extent banks’ profits will be influenced..
thank all for yr useful contribution.
I think the impact depends on the instructions of the Central banks or the governing body of your country. Certain parts of the world, they allow banks to take the initial ECL out of retained earnings or Risk Reserve reducing the impact on the PnL directly (however any incremental ECL going forward would have a impact on the PnL). This approach would have a impact on the CAR of the bank provided ECL does not qualify for Tier 2. If ECL qualifies for Tier 2 then the overall CAR would not be affected but Tier 1 would be reduced. Further this reduction in Tier 1 might have a impact on the Obligor limits on the bank. Like I said this all depends on the regulator of your region.
exactly..it depends since:
a)the ECL generates higher LLP estimates, allowing banks to adopt this model in order to reduce high profit (smooth earnings)
alternatively b)banks' management can choose the incurred loss provisioning model to increase low earnings (smooth income)..
I think it is adding unnecessary complexity without much utility.
IFRS 9 will lead to high financial reporting quality.
It will increase the discretion of bank managers in determining the level of accruals (e.g. loan loss provisions) for credit risk.
The IASB had to modified IFRS rules to meet the regulatory needs of bank regulators for the banking system. The effect of IFRS 9 should be positive. The main issue that IFRS 9 present to analysts is that it is too forward-looking, which can create incentives for bank managers to manipulate reported earnings - using estimates.
Best,
Peterson
This is the exact paremeter -of the upcoming moral hazard- to be quantified-monitored-hedged..
I am carrying out a study on IFRS 9 implications on earnings quality and my preliminary findings illustrate that the adoption of IFRS 9 reduced the quality of earnings of banks in SSA. This is contrary to the proposition advanced by Peterson Ozili in this thread and an interesting finding which warrants further investigation.
- Badges
- Science topic
- Similar topics
- Econ
- Manufacturing
- Industry