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Moody's expects IFRS 9 implementation to be credit neutral for APAC banks

Moody's expects the implementation of the International Financial Reporting Standard 9, or IFRS 9, to have a credit neutral impact on Asia-Pacific banks' profiles because the banks' higher problem loan coverage ratios will offset small reductions in their capital ratios.

The transition to IFRS 9 has so far resulted in average declines of 10 basis points in Asia-Pacific banks' common equity Tier 1 ratios, said Eugene Tarzimanov, a Moody's vice president and senior credit officer. The impact is "a very manageable outcome that is more modest than the impact on European banks," Tarzimanov said.

The small declines in capital buffers will be offset by higher impaired loan coverage ratios at many banks in the region, Tarzimanov added.

Moody's noted that Asia-Pacific banks' profitability will become more volatile under IFRS 9 when the credit cycle turns, as new credit provisions will be more sensitive to asset migration between different stages, as well as to changes in banks' macroeconomic assumptions.

The IFRS 9 came into effect Jan. 1 in Hong Kong, Singapore, South Korea and Taiwan, while implementation in Australia and New Zealand will be completed by the end of 2018. Most emerging markets will follow suit in the coming years, with the exception of banks in Malaysia and the Philippines, which have already implemented the new reporting standard.

Moody's does not expect any changes to the baseline credit assessment and credit ratings that it assigns to IFRS 9-compliant banks in the region.