Abstract
On January 1, 2018, IFRS 9 became effective in the EU. It introduced the expected credit loss model to allow for timely recognition of credit losses, estimated not only on the actual credit loss experience but also on forward looking information related to current loan portfolio. Although the transition to IFRS 9 should lead to increased impairments and decrease in banks’ equity, this effect is ambiguous in the settings characterised by combined effects of optimistic macroeconomic outlook and strong regulatory intervention related to extensive loan portfolio restructuring. This paper investigates day-one transition effect of IFRS 9 on level of loan impairments and total equity of banks in Slovenia, Eurozone country, which barely averted international bailout in 2013 by extensive state assisted bank restructuring. The comparative analysis is done on banks that transferred deteriorated loan portfolio to the state’s Bank Assets Management Company and all other banks. In line with expectations we find that banks without extensive asset portfolio improvements recognised additional loan impairments on transition to IFRS 9, whereas the opposite effect is observed for banks which performed state-assisted loan portfolio restructuring. Our study provides additional insight on the effect of institutional and regulatory setting on IFRS 9 implementation effects.
Highlights
On January 1, 2018, the new IFRS 9 Financial Instruments became effective in the EU
In line with expectations we find that banks without extensive asset portfolio improvements recognised additional loan impairments on transition to IFRS 9, whereas the opposite effect is observed for banks which performed state-assisted loan portfolio restructuring
In line with expectations we find that banks without extensive asset portfolio improvements recognised additional impairments of financial assets on transition to IFRS 9, whereas the opposite effect is observed for banks which performed extensive state-assisted loan portfolio restructuring
Summary
On January 1, 2018, the new IFRS 9 Financial Instruments became effective in the EU. IFRS 9 introduced the new, more principle-based classification and measurement of financial instruments, the forward-looking expected loss impairment model of financial assets and new hedge accounting rules better aligned to risk management activities. All the above-mentioned changes provide a direct response to the mandate given by G20 (2009) to improve standards for the valuation of financial instruments to eliminate shortcomings induced by the 2008 financial crisis. In the accompanying press release Hans Hoogervors, chairman of the International. Licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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