IFRS 9 transition effect on equity in a post bank recovery environment: the case of Slovenia

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.

Income smoothing management and loan loss provisions in the banking system

“…However, IFRS 9 arose precisely in response to the requirements in the accounting model and focused on the credit institution sector as far as provisions are concerned. Novotny-Farkas (2016) concludes that IFRS 9 incorporates more relevant information to estimate provisions earlier and thus complies with the requirements of supervisory bodies, as Groff and M€ orec (2021) indicated in the requirements of the G20. This method of anticipating potential losses also makes it possible to mitigate the distribution of benefits.…”

The accounting treatment of expected credit losses by South African banks during COVID-19

“…The GFC accentuated the need to replace IAS 39 (Groff & Mörec 2021), as IAS 39 resulted in inconsistencies between various entities owing to a vast number of measurement options, less timely credit loss allowances and a disjoint between accounting outcomes and business activities (Beerbaum 2020). Effective for financial years beginning on or after 01 January 2018, IAS 39 was replaced by IFRS 9. International Financial Reporting Standard 9's primary purpose is to prescribe the classification and measurement requirements for financial assets and liabilities (Groff & Mörec 2021). In terms of IFRS 9, there are three categories in which financial assets can be classified, namely amortised cost, fair value through profit and loss and fair value through other comprehensive income (IASB 2014).…”

“…The paradigm shift from IAS 39 to IFRS 9 is said to be the impairment model used (Beerbaum 2020), as IFRS 9 includes expectations relating to future credit defaults in calculating the allowance for credit losses (Gebhardt 2016). This 'expected credit loss' impairment model of IFRS 9 replaced the 'incurred credit loss' impairment model of IAS 39, which only recognised credit losses when a credit event had occurred (Groff & Mörec 2021). The incurred loss model of IAS 39 was extensively criticised during the GFC, as it deferred the recognition of credit losses until too late in the credit cycle, thereby aggravating the procyclicality of bank lending and leading to decreased financial stability (Dong & Oberson 2022;Novotny-Farkas 2016).…”

Katilim Bankalarinda Kredi̇lerden Ayrilan Karşiliklarin TFRS 9’a Göre Muhasebeleşti̇ri̇lmesi̇

“…İlk grupta yer alan çalışmalar TFRS 9/UFRS 9 uygulamasının bankacılık sektörünün finansal tablolarına etkilerini inceleyen çalışmalardır. (Nadia & Rosa, 2014;Sultanoğlu, 2018;Casta vd., 2019;Loew vd., 2019;Karaaslan & Gülhan, 2020;Ã ‡ollaku vd., 2021;Dib & Feghali, 2021;Groff & Mörec, 2021;Pastiranová & Witzany, 2021;Telci, 2021;Mengı̇ vd., 2022). Bu grupta yapılan çalışmalar çoğunlukla geleneksel bankacılık sektörüne odaklanmaktadır.…”