To understand IFRS 9 challenges, start with a shared language


505727553For banks across Asia and Europe, a new accounting standard is of increasing importance – IFRS 9. With the first IFRS 9 reporting deadline looming January 1, 2018, banks are trying to understand what they need to do to be ready.

At its core, the IFRS 9 accounting standard introduces a new approach to calculating impairment allowance of financial instruments, now based on expected credit loss (ECL) modeling. This will have a significant impact on the way banks account for credit losses on their loan portfolios.

Recently, I participated on a panel via webcast with other IFRS 9 experts to discuss what banks need to focus on to meet the 2018 deadline. The good news is that all of us on the panel felt IFRS 9 challenges are being taken seriously. The banking community is also starting to realize IFRS 9 implementation is more complex than originally thought, especially when connecting risk and finance.

It is a core objective from the regulators that existing finance and risk silos should be eliminated and the two groups should simply talk more.

One barrier to realizing this desired cooperation is in the differing languages of business used by the two groups. Finance has focused on accounting. Risk has focused on meeting regulatory requirements. So there are a lot of communication barriers in conversations involving needs and solutions.

During the webcast, a polling question asked, “How far ahead are you in your IFRS 9 implementation?” Nearly 67 percent replied they have a lot left to do, while amazingly, close to 23 percent flagged they had not even started.

These percentages echo my experience regarding the current state of affairs with IFRS 9. There is a crescendo of awareness – finance looked at it with their business as usual perspective, then risk determined their approach, and now the issue is to reconcile the two.

Meanwhile there is not much guidance in terms of methodology. While banks clearly understand this is a principles-based set of requirements, they also want to know what others are doing. Banks want to understand how they should approach the guidelines. Understanding how to interpret the rules and the potential impact is something banks are testing.

Despite the many and varied IFRS 9 challenges banks will face, there are long-term benefits. The exercise leads to modernization – contributing to bringing data, risk and finance together – enabling new business models to be evaluated using risk analytics.

The immediate steps are hard, but banks recognize there are real benefits in the long run. They just need to learn to speak a language everyone can understand.

To learn more, review the white paper Navigating the route to IFRS 9 compliance and view the full webcast of the IFRS 9 panel below.


About Author

Martim Rocha

Martim Rocha is currently the Global Head of the SAS Risk Banking Solutions, as such he manages a team of global experts on banking risk management, defining roadmaps and priorities for SAS solutions and supporting customers all over the world on their journey to take the best of the SAS solutions, from scoping and defining the best approach for each business case to helping customers taking the SAS solutions through implementation to be live as a production system. Martim has several published papers and has spoken at several conferences around the world on the topics of Risk Management in Banking, Risk and Finance Integration, IFRS9/CECL, Regulatory Risk Management, ALM, Capital Planning, Scenario Based Analysis and Stress-testing. With SAS for more then 17 years, he played the role of Strategic Advisor and Solution Designer on projects such as Stress-testing on a G-Sib based in London; IFRS9 and Stress-testing at G-SIB bank covering more than 60 locations worldwide; IFRS9 impairment at a couple of Top 5 Nordic Bank covering 5 countries; IFRS9 full-scope at Top banks in UAE; and IFRS9 impairment at more than a Top 5 South African Bank. Martim has more than 25 years of experience in the financial services industry on the topics of risk management, business analytics and data management. He has designed and managed projects for banks, insurance firms and other financial services companies in areas such as financial management, risk management, predictive analytics, financial and sales performance, strategy management, and customer analysis and segmentation. In addition, he was a lecturer for courses on advanced decision support systems, data warehousing and data mining at the Autonomous University of Lisbon and at the ISCTE Business School. Before joining SAS, Martim was a partner on the Business Analytics focused consulting firm, Noscitare where he led the delivery of many IT projects in financial services companies. Martim has a post-graduate degree in Business Administration from Nova SBE and has an undergraduate degree in Computer Science from ISIG.

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