EBA impact study on IFRS 9

In 2016, the European Banking Authority (EBA) approached 58 European credit institutions with a comprehensive survey.¹ This was carried out at the beginning of the year and was repeated at the end of the year. The aim was to obtain information on the impact (including on regulatory issues), implementation status, practical handling and any problems arising in the context of implementing IFRS 9², the new standard on the accounting for financial instruments at credit institutions.

The survey included both qualitative and quantitative questions on implementing the new standard. Six German institutions were involved: DZ Bank, Landesbank Baden-Württemberg, Deutsche Bank, Commerzbank, Nord/LB and Bayerische Landesbank.

At the time of the first survey, the majority of the surveyed institutions had not yet made significant progress in implementing IFRS 9. The EBA thus made it clear at the beginning of 2016 that the survey would be on a best effort basis.³ The information provided by the credit institutions must therefore be viewed as preliminary. Based on the feedback received, the EBA issued a report containing an anonymous summary of the credit institutions' main responses, which were as follows:

• The quantitative impact was mainly attributable to the new impairment requirements and less to the new classification and measurement requirements. For the median⁴, European credit institutions stated that they expect provisions to increase by 20%. The figure was 30% for the 75th percentile⁵. This also corresponds to the responses from the German credit institutions. As a result, the CET1 ratio⁶ at European institutions decreases by up to 50 basis points for the median and by 75 basis points for the 75th percentile. German credit institutions also reported that the CET1 ratio would decrease by up to 50 basis points for the median. This figure is also the same for the 75th percentile.
• Overall, the requirements associated with IFRS 9 in respect of data volume and quality are the greatest difficulty for the surveyed European credit institutions. This did not necessarily appear to be the case for the German credit institutions, half of which do not expect any problems relating to data availability.
• Both the respondents overall and the German credit institutions intend as far as possible to leverage existing regulatory processes, models and data, and to build on these. The banks point out that they would potentially have to adapt these models and processes to correspond to the requirements of the new standard.
• Although the credit institutions intend to make use of the practical expedients when implementing IFRS 9, this would happen to varying degrees and in some cases as a backstop if no other information were available. This applies to both the respondents as a whole, as well as to the German credit institutions.

The EBA published the report on its website in November 2016. It simultaneously launched the second survey exercise. Again, the questions concerned both qualitative and quantitative aspects. The deadline for the credit institutions to respond was 15 February 2017.

In view of the approaching effective date of the standard (1 January 2018), there are higher demands on the validity of the information in the second survey. The information is therefore no longer to be supplied on a best effort basis. Following completion of the exercise, the EBA will again publish a report detailing the key findings.

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