Implementing IFRS 9 impairment – key challenges and collected impressions

Implementing IFRS 9 impairment – key challenges and collected impressions

Lars Meyer, zeb
Lars Meyer, Senior Manager at zeb talks to the Center for Financial Professionals ahead of his session at the IFRS 9 Impairment & Implementation Summit where he will be discussing his ideas ahead of the 2018 implementation date.

Lars, can you tell the Center for Financial Professionals about yourself and your professional experience?

 

My name is Lars Meyer since 2007 I work at zeb in practice group accounting – currently as senior manager.

During this time I accompanied several projects on accounting and accounting related topics at German and international banks. The projects included support on conceptual and process challenges as well as implementation of IT-systems.

Since introduction of IFRS 9 the main focus is on adapting and implementing topics relating to impairment. With my colleagues at zeb I accompanied diverse projects – pre-studies and main stage – inter alia including implementation of zeb.accounting software, which covers all three areas of new standard, classification and measurement, impairment and hedge accounting.

 

 

We are looking forward to you presenting at our IFRS 9 Impairment & Implementation Summit. What would you say are the key IT challenges we can expect from IFRS 9 impairment?

 

The IT challenges that are expected from IFRS 9 impairment are aligned with the conceptual and processual challenges of the topic – especially:

  • Implementation of stage transfer logic in current IT infrastructure including adaption of IT-systems in place largely by launch of new software solutions
  • Implementation of infrastructure for calculation of lifetime risk parameters – e.g. through Markov-chains, PD-profile-curves etc. The topic is tough to tackle within conception phase – the corresponding IT-Infrastructure and calculation methodologies within risk architecture are not in place at most clients which are assisted by zeb.
  • The booking and reporting systems have also to be adapted to satisfy the current reporting requirements arising from IFRS 9 impairment. Especially:
    • the massive reconciliation requirements,
    • breakdown of performing loans in stage 1 and 2,
    • breakdown of non performing loans in POCI and “simple” stage 3 loans
  • As expected after significant regulatory amendments the topic of connecting different interfaces to one another arises also during the implementation of IFRS 9. Especially as new IT-infrastructure described above have to be aligned with current systems in place.

 

 

What considerations should financial professionals bare in mind when staging criteria?

 

There are plenty of challenges and considerations that especially financial institutions but also industrial companies have to bare in mind when defining staging criteria, especially:

  • Application of relative transfer criteria
  • Application of absolute transfer criteria
  • Application of days-past-due information
  • Application of further qualitative observations that are not reflected in dpd or rating
  • Determination of ranges to fulfil the stage change from stage 1 to stage 2 and vice versa

On this topics the current publication of Basel Committee (BCBS 350) and publications of ITG have to be considered to determine robust and IFRS compliant process for stage transfer

Also the correct segmentation of portfolios in place and application of determined criteria and ranges can have significant impact on impairment charge over the years and especially at first adoption

 

 

How do you see the role of Stress Testing Professionals changing over the next 6-12 months?

 

The role and tasks of stress testing professionals changes clearly with the introduction of new IFRS 9 impairment framework, as the stress test results are largely driven by change of impairment methodology and impairment charge, being one of main drivers for equity figures especially for financial institutions

  • Stress testing professionals have to consider the impact of new IFRS 9 Impairment methodology on overall impairment charge for financial institutions and especially on equity
  • Further the development of overall credit portfolio has to be considered – not only the development of impaired financial instruments. This is due to the changed measurement methodology in stage 2 for financial instruments not impaired but with significant deterioration of credit quality since initial recognition
  • In some cases we also expect the higher impairment charge for securities in portfolio as far as the later will be, in our opinion, under strict supervision from auditors and regulators due to changed impairment methodology and possible measurement of impairment on expected lifetime loss basis
IFRS 9 17

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