Almost half of the major banks around the world expressed unwillingness to implement new international financial reporting standards “IFRS 9 “Financial instruments”, which contains revised guidance on the valuation of financial assets, including their impairment, and additional guidance on the new principles of hedge accounting. According to Financial Times, this is according to a survey by consulting firm Deloitte among 91 banks across the world, excluding US banks. The names of the banks Deloitte did not disclose.
The new rules will come into effect from January 2018. 46% of respondents do not believe that they have enough resources to bring their performance into compliance with the new requirements by this time. The vast minority said about the absence in the market of professionals which you could hire for this.
Nearly two thirds of respondents stated that they can not accurately predict how new rules will affect their balance sheet. According to him, banks have to make in the balance of provisions to cover expected losses, not already incurred. Respondents who made the calculations, assume that the total amount of the allowances for impairment of all classes of assets will jump by 25%.
Respondents also fear that the new rules will worsen the adequacy of their capital. According to their estimates, tier I capital (core capital) will be reduced on average by 0.5%.
According to 99% of respondents, local financial regulators haven’t clarified how banks can include indicators according to IFRS 9 the requirements for regulatory capital.
IFRS 9 “Financial instruments” was developed in the framework of the struggle with the consequences of the global financial crisis of 2008: the banks were unable to timely recognize losses on financial assets, including loans, thereby confirming the necessity of improving the current system of international accounting. By moving from an “incurred loss” to “expected losses,” the regulators hope to avoid a repetition of these problems.
Now the rules for assessing and recording impairment of financial assets gives IAS 39. The Council of the international accounting standards decided to replace it with IFRS 9 as a more logical and easy to use. The final version of the new rules was presented in July 2014.
Financial institutions, under the new model must recognize expected credit losses at initial recognition of the asset. Part of the expected loss (within 12 months) is recognised in respect of all financial instruments concerned, since their initial acquisition or issuance. Then the financial institutions on a regular basis to produce an estimate of the increased credit risk of the asset. In subsequent reporting periods, if the risk from the time of the initial acquisition significantly increases, possible credit losses will be recognized as final for the entire circulation period of the asset.
The likely increase in reserves as a result of the entry into force of IFRS 9 “raises suspicion,” said Stephen Hall from the consulting firm KPMG. “Requirements of IFRS 9 will be almost as difficult to do as to talk about them. Companies must consider a range of scenarios for the future, and in the current economic instability, the impact assessment (new regulations) is not an easy task”, — quotes his FT.
