The European Banking Authority (EBA) believes EU institutions have made good efforts to adapt systems for IFRS 9, but more can be done.
Its new report summarises the findings arising from the monitoring activities on the International Financial Reporting Standard (IFRS 9) implementation by EU institutions.
The regulator hopes the report can assist supervisors’ evaluation of the quality and adequacy of IFRS 9 Expected Credit Loss (ECL) models. The EBA will continue to monitor and promote consistent application of IFRS 9 and work with prudential requirements.
Its observation stated that EU institutions have made significant efforts to implement and adapt systems for IFRS 9 requirements, but the level of judgement embedded in the standard leaves open the possibility to use a wide variety of practices, it said.
While no single practice turned out to be a strong driver of the ultimate levels of provisioning, some observed practices would deserve more scrutiny from supervisors.
One of the major relevant areas are the approaches implemented on the Significant Increase in Credit Risk (SICR) assessment. It stated there was where limited use of the notion of collective assessment for borrowers with common characteristics.
Other assessments from the regulator included very few institutions used the transitional arrangements for the Capital Requirements Regulation and the Covid-19 pandemic pushed IFRS 9 models outside their ordinary working hypothesis, resulting in increased use of overlays.
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