IFRS9 & loans in the crisis era
One of the most significant challenges for banks and banking technology over the recent years has been debt instruments and their processing –the loan portfolio processing from front to back being the game changer. Financial crisis, in Greece and a number of countries worldwide, unleashed problems around bad debt and its handling, the necessity for debt restructuring techniques and the information available for their assessment, but also the classification, the initial and subsequent measurement of the banks’ assets as well as the structures of their impairment and financial reporting methods.
“It seems that moving from IAS39 to IFRS9, has come to consolidate and summate all the above”
The need to dig deeper
A shift to operational approach
The wide adoption of IAS (International Accounting Standards) during the 2000s made banks implement initiatives towards a more or less reporting approach based on second-level processing. Still, IAS39 did the favour of bringing EIR, valuation and provisioning and collateral allocation into the picture, a favour that banks having adopted it per se are now thankful when IFRS9 came in play.
The movement to IFRS and specifically to IFRS9 when it comes to financial instruments, has shifted focus to a more core and operational, as opposed to reporting, approach. The first pillar of IFRS9, the classification and measurement of the financial instruments, with the complexity of the underlying assets, means that this is possible and efficient only if data and information is captured at the source. The tight link to the second pillar, the one of impairment and ECL (expected credit losses) concept, has also made banks think towards an event as opposed to a snapshot basis policy .
Moving from IAS39 to IFRS9
Transition and adoption issues
The preparation, transition and first-time adoption period has been a rather steep exercise. It meant that banks were forced to revisit their core lending systems and processes, their raw data but also their data marts. Primary concern being the classification, valuation and the consistent reflection in their books. It also meant that they had to revisit the models, processes and flows related to their provision assessment, one of the most complex and cumbersome journeys within banking operations.
This has become even more complex in environments where more that one GAAPs are in place (e.g. the local GAAP and the IFRS one), where a ‘migration’ approach has been more or less the case.
Analytix IFRS 9 projects involvement
Having a long-term experience and expertise in core lending technology, the involvement of Analytix Consulting in all the above came more than natural. Our team has recently been involved in projects on the overall processing, transition and implementation of IFRS9 in the lending portfolio of banks.
During the adoption period of the new standard, our team of consultants have dealt with the implications and adaptations of the IFRS9 mandates into the real-life terms of operational lending technology and systems, the debt restructuring and sales of loan portfolios, the recognition and subsequent measurement of the lending portfolio as well as the risk and impairment aspects.