MAIN PROVISIONS OF APPLICATION OF IFRS 9 AND IMPACT ON CREDIT LOSSES IN BANKS
Abstract
The International Financial Reporting Standard 9 (IFRS 9) came into force on 1 January 2018 and applies for annual periods beginning on or after the same date. The primary objective of replacing IAS 39 with IFRS 9 concerns the simplification of the main categories of financial assets, where the measurement of financial assets is now based on the entity's business model and contractual cash flows. In practice, this means that it is now the responsibility of a business entity to group certain categories of financial assets into specific business models that must be approved by the entity's management, with a clearly documented investment policy.IFRS 9 requires the introduction of a new impairment model primarily as a response to the previous World Financial Crisis, but also due to unification of the basis of measurement and early identification of changes in credit risk. For all assets that are not measured at fair value through the income statement, this means that recognition of credit losses is made on the first day after worsening indicators of financial assets have been identified, which ultimately leads to higher impairment. IFRS 9 changes the impairment model that existed under IAS 39 which identified the resulting credit loss exclusively at the time of chaning the client status from performing into a non-performing.The expected loss model introduced by IFRS 9 now involves 3 stages of credit quality deterioration, whereby the resulting recognized credit losses, with much greater correlation follows economic losses, thereby increasing the amount of impairment.
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