Global Banks Unprepared For IFRS Implementation, Says Deloitte Survey

Results of a global survey conducted by Deloitte show that “nearly half of big banks around the world” are not ready for a new International Financial Reporting Standard known as IFRS 9, set to come into effect in 2018. More details from the results of the survey have been reported in the Financial Times, which states that  the “poll of 91 banks across the globe — excluding U.S. banks that are governed by their own rules — has found that 46 percent of those surveyed do not believe they have enough resources to deliver changes by the 2018 implementation date.” Further, a “significant minority” of the banks also stated that they could not find enough skilled talent in the marketplace to hire in order to accomplish the required changes.

In terms of the impact the rules will have on banking institutions, “nearly two thirds of banks are unsure how the rules might impact their balance sheets,” and for banks that have calculated the impact, they “reckon the rules will result in a surge of at least 25 percent in total impairment provisions across all asset classes.” The new rules will bring changes to the way loss provisioning worked prior to the financial crisis, in that it will “force banks to have a provision on their balance sheets for expected losses in the future rather than actual losses already suffered.”

Additionally, the banks surveyed are forecasting that the new rules “will cause their capital ratios to deteriorate: they are expecting core tier one capital — one of the most keenly watched metrics of the health of a bank’s balance sheet — to decrease on average by half a percent as a result of moving to the new standard” according to Deloitte. But banks are not the only financial institutions that are experiencing uncertainty in the face of the new rules, “99 percent of respondents said their local financial regulator had yet to say how they might incorporate IFRS 9 numbers into regulatory capital requirements.”

IFRS 9 is just one part of a “suite of measures by the International Accounting Standards Board to overhaul accounting since the financial crisis.” The creation of international accounting rules attempts to “increase regulatory cooperation between the U.S. and international standard setters.”

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