Assessing the preparedness of financial institutions using standard approach for IFRS 9

Assessing the preparedness of financial institutions using standard approach for IFRS 9

Introduction

Sometimes it seems as if IFRS 9 is only a game for the biggest financial institutions (FIs) using IRB. Most of the talk is about several-billion-euro projects, developing the most sophisticated risk modelling techniques in projects requiring thousands of man-days. But what about banks using Standard Approach? Banks that mostly have neither this level of resources, nor the detailed analytics for such highly elaborate methods. Is there hope for them? The answer is, hopefully, YES.

Online Business Technologies (www.moonsol.com) and the Center for Financial Professionals (www.cefpro.com) have launched a joint survey to screen the IFRS 9 impairment approach of banks using Standard Approach, and identify widely used simplification strategies that are allowed by the standard.

About the survey

Online Business Technologies and the Center for Financial Professionals prepared a survey based on “The implementation of IFRS 9 impairment requirements by banks’ study published by the Global Public Policy Committee (GPPC) on 17th June 2016.

The survey consisted of 15 questions and was published on a website maintained by the Center for Financial Professionals. The survey was open in November and December 2016. The survey was filled in by 146 respondents. The responses came predominantly from Europe (87%), especially from Western Europe (48%) and Southern Europe (28%). If we check the nationality of the respondents, we find that two countries proved to be most active in the survey: the United Kingdom (21%) and Italy (12%).

Objectives and questions to be answered

The objective of the survey was to

  • give an overview of the status of IFRS 9 implementation projects to serve as a benchmark for banks,
  • identify simplification opportunities, which are widely used by the banking community, and share ideas about these opportunities,
  • screen the expected budget and IT costs of IFRS 9 implementation to enable banks to compare their implementation project to others.

In order to accomplish these objectives, our survey intended to find answers to the following questions:

  1. Are larger FIs more advanced in IFRS 9 implementation? Is it true that, the larger the organization, the easier it is to allocate appropriate resources for IFRS 9 implementation and move forward?
  2. Is there a correlation between the size of a respondent FI and the likelihood of using simplifications in IFRS 9 implementation? Is it true that larger FIs use less simplification?
  3. What are the most popular simplification techniques? What are the least popular ones?
  4. Which areas of IFRS 9 impairment are most unclear for banks? Which areas become most clear as the implementation projects move forward?
  5. What are the most popular models for PD modeling? Is there any correlation between the size of a respondent FI and the likelihood of choosing specific PD modeling statistical analysis? E.g. are smaller FIs more likely to choose transitions matrices, while large Fis choose vintage analysis?
  6. How do banks plan to develop their IT systems to meet the challenge of IFRS 9 implementation? Do they intend to procure new systems, or develop the existing ones? What are the expected costs of the implementation?

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