Question

Identify and explain, if and how the new changes of IFRS 9 introduced by the standards can prevent
(or resolve) the problems (financials) inherent within the banking industry.

Answer 1

IFRS 9 is an International Financial Reporting Standard published by the International Accounting Standards Board. It addresses the accounting for financial instruments. It contains three main topics: classification and measurement of financial instruments, impairment of financial assets and hedge accounting.

IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB's replacement of IAS 39 Financial Instruments on may 2020 : Recognition and Measurement. The Standard includes

1. requirements for recognition

2. measurement

3. impairment

4. derecognition

5. general hedge accounting.

The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase.

Impact of IFRS 9 in banking industry:-

1. The biggest effect of IFRS 9 is the rise in loan loss provisions from the new expected loss impairment model, as compared to IAS 39’s incurred loss model. The IFRS 9 allowance level compared to the relevant asset balance is less than 2% at the majority, but up to 4% and 6% at BNP and Unicredit, respectively

2. The Major impact of IFRS 9 on banks (with one exception) has been a gradually increase in the extent of their credit loss allowances, which will raise their resilience to adverse economic events. But this has not perhaps been the earthquake some were predicting.

3. The new level of allowance relative to their assets remains significantly different between banks.

4. The IFRS 9 provision model will make banks evaluate, at origination, how economic changes will affect their business models, capital plans, and provisioning levels.