European Banks' Capital Survives New IFRS 9 Accounting Impact, But Concerns Remain

S&P Global Market Intelligence
Written By: Eazaz Khan and Vanya Damyanova
S&P Global Market Intelligence
Written By: Eazaz Khan and Vanya Damyanova

Most big European banks have seen a fairly small impact on their capital levels from the first-time implementation of the new IFRS 9 accounting rules, which came into effect from Jan. 1, 2018, but the early disclosures are patchy and concerns over future provisioning remain.

Provisions for expected, rather than already incurred, credit losses were the biggest change introduced by the new International Financial Reporting Standard, IFRS 9. Under the rules, banks are required to hold capital against expected credit losses on all of their assets regardless of their current level of quality.

Provisions for newly originated performing assets, dubbed Stage 1 assets, are made for the next 12 months, while lifetime provisions are required for assets at risk of default, categorized as Stage 2, and nonperforming assets, dubbed Stage 3.

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