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Increased detail on bank disclosures | Real-time IFRS 9

Real-time IFRS 9

Ewa Bialkowska

Ewa Bialkowska

Ewa specialises in accounting for the banking and financial services sectors, with over two decades of experience in auditing and delivering accounting advisory services to financial institutions in the UK, continental Europe and other jurisdictions.

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IFRS 9 bank disclosures

Increased detail brings clearer focus

6 March 2018

In my first blog post a couple of weeks ago, we started to get the first picture of the impact of IFRS 9 adoption for banks – with a median CET1 impact on 11 European banks of -15 basis points.

Now, just a fortnight on, the picture is coming into clearer focus as banks issue more detailed information, which has yielded some interesting perspectives. 

In the UK, several banks have released their 2017 financial statements, with some also publishing detailed IFRS 9 transition packs. Also, a number of Canadian banks have issued their first quarter reports under IFRS 9.

We’ve also analysed disclosures on how exposures are split by stage of impairment under IFRS 9, with some interesting observations. 

 

Disclosures in 2017 financial statements by UK banks

The 2017 financial statements of UK banks published so far include information required by IAS 8 – “known or reasonably estimable information relevant to assessing the possible impact” of IFRS 9. The extent of disclosure varies but most include a description of the new requirements and areas of impact, and the amount of impact on shareholders’ funds. Some also provide more detail on the quantitative impact.

The impact on the CET1 ratio is disclosed in unaudited parts of the annual reports. 

 

Disclosures in transition packs by UK banks

Three UK banks have issued their IFRS 9 transition packs. These have been issued at the same time as the financial statements themselves, or within a week. 

The packs are generally not audited although one bank did issue a set with the majority of its content subject to audit. 

Overall, the level of detail in the packs gives users much to consider – they contain many qualitative and quantitative disclosures. Here are a few things to think about including if you’re compiling a transition pack for your bank (PDF 72 KB).

Real-time IFRS 9 | What should you put in your IFRS 9 transition pack

Three banks disclosed that they have decided to early adopt the IFRS 9 amendment on negative compensation with effect from 1 January 2018, acknowledging that it still has to be endorsed in the EU.

The transition packs are a new animal and – given what we’ve seen so far – they should be very helpful to analysts and investors. 

 

First quarter 2018 disclosures by Canadian banks

Canadian banks – which generally have October year ends – have issued their unaudited first quarter 2018 reports under IFRS 9. In particular, we’ve seen the following disclosures.

  • How accounting policies have changed on adoption of IFRS 9 .
  • How the opening IFRS 9 numbers reconcile to the closing IAS 39 balance sheet. These reconciliations show separately how assets and liabilities moved between different measurement categories, and changes in measurement. The reconciliations are more granular than balance sheet lines and some include an analysis of the impact attributable to classification and measurement and impairment.
  • How the opening IFRS 9 ECL allowances reconcile to closing IAS 39 loss allowances, in total and per class of financial instrument. Classes of financial instruments disclosed include residential mortgages, credit cards and business and government loans.
  • How designation options have been used. Designations made on adopting IFRS 9 include designation of debt instruments as at FVTPL and equity securities at FVOCI.

The banks provide further data as at the end of the first quarter, including stage analyses of exposures and loss allowances.

 

IFRS 9 in numbers

An interesting piece of disclosure is analysis of loans by stage of credit deterioration, which forms the basis for measuring impairment under IFRS 9. 

Under the standard, newly originated or acquired exposures are classified as Stage 1. When there has been a significant increase in credit risk for an exposure it moves to Stage 2. Finally, when there is a loss and the exposure becomes credit-impaired it is allocated to Stage 3.  

The charts below summarise stage allocation data across loan portfolios of seven banks (four from Canada and three from the UK) that disclosed such information. For credit cards and other consumer loans, only five banks are included. The amounts are not weighted by the size of exposures.

IFRS 9 ECL staging | Percent of gross exposures
IFRS 9 ECL staging | Percent of ECL allowances

There appear to be large variations in staging, depending on the type of lending. For the banks in our sample, on average, the Stage 3 loss allowance represented 45% of total loss allowance under IFRS 9.

We will bring you more observations as further information is published – so stay tuned to Real-time IFRS 9.