Dear,
On January 1st, 2018 (5 months from now), IFRS 9 becomes effective.
We’ve talked about IFRS 9 in previous blogs, in general this is not just a new regulation, it actually represents a paradigm change in the valuation of the Financial Instruments.
IFRS 9 implementation has been a long journey, the first discussion paper was published by the International Accounting Standard Board in March 2008. The paper proposed that all financial instruments should be valuated at fair value. Some months later, as a result of the financial crisis of 2008, the IASB decided to revise their accounting standards according to some recommendations of this paper.
After 9 years, all Banks should be ready for presenting their books according to the new standards; we’ll see next year if they really are.
In my opinion IFRS 9 represents two critical challenges:
- According to a survey conducted by the European Banking Authority, European banks estimate an increase of provisions of 18% on average (and up to 30% for 86% of the respondents) compared to the current levels of provisions under IAS 39. On the other hand, the common equity tier 1 (CET1) ratios are expected to decrease on average by up to 59 basis points (bps) (and up to 75 bps for 79% of the respondents). In limited cases the impact of IFRS 9 could be higher. This represents a very relevant reduction of the Capital ratios of Banks, reducing their capacity to lend and invest.
http://www.eba.europa.eu/-/eba-provides-its-views-on-the-implementation-of-ifrs-9-and-its-impact-on-banks-across-the-eu
- Regulators are watching very closely and they are expecting robust reporting systems, providing reconcilable results, proving the strict implementation of the standards. This represents a lot of stress on the Information Systems of Banks, many of them supported by legacy systems, which are far from being capable of fulfilling the regulators expectations.
SAP Bank Analyzer provides the best answer for tackling these challenges:
Bank Analyzer provides the Fair Value of every Financial Transaction (Over The Counter Contract) and every Financial Instrument (Security or Listed Derivative) with the AFI Module. Additionally, determines the Risk Weighted Assets (Capital Requirements) of every contract, with the Basel III Module.
With information, the Banks Capital Managers can determine contract by contract the Profit or Losses generated by every Contract, and the Capital consumed by it.
Additionally, every contract is categorized by a set of Reporting Dimensions which will provide the basis for Business and Regulatory Reporting. Aggregating bottom up every contract, according to the values of its Reporting Dimensions, the Banks Capital Managers will estimate the Profit or Losses generated by every micro-portfolio, including the performance of the portfolio in stressed scenarios.
Insurance companies, will face very similar challenges with the implementation of IFRS 17, with effective date January 1, 2021, and Bank Analyzer, or in this case Insurance Analyzer, is also the best alternative to support the challenges that will come with it.
We’ll talk about it in a future blog.
Looking forward to read your opinions.
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Kind Regards,
Ferran Frances.
On January 1st, 2018 (5 months from now), IFRS 9 becomes effective.
We’ve talked about IFRS 9 in previous blogs, in general this is not just a new regulation, it actually represents a paradigm change in the valuation of the Financial Instruments.
IFRS 9 implementation has been a long journey, the first discussion paper was published by the International Accounting Standard Board in March 2008. The paper proposed that all financial instruments should be valuated at fair value. Some months later, as a result of the financial crisis of 2008, the IASB decided to revise their accounting standards according to some recommendations of this paper.
After 9 years, all Banks should be ready for presenting their books according to the new standards; we’ll see next year if they really are.
In my opinion IFRS 9 represents two critical challenges:
- According to a survey conducted by the European Banking Authority, European banks estimate an increase of provisions of 18% on average (and up to 30% for 86% of the respondents) compared to the current levels of provisions under IAS 39. On the other hand, the common equity tier 1 (CET1) ratios are expected to decrease on average by up to 59 basis points (bps) (and up to 75 bps for 79% of the respondents). In limited cases the impact of IFRS 9 could be higher. This represents a very relevant reduction of the Capital ratios of Banks, reducing their capacity to lend and invest.
http://www.eba.europa.eu/-/eba-provides-its-views-on-the-implementation-of-ifrs-9-and-its-impact-on-banks-across-the-eu
- Regulators are watching very closely and they are expecting robust reporting systems, providing reconcilable results, proving the strict implementation of the standards. This represents a lot of stress on the Information Systems of Banks, many of them supported by legacy systems, which are far from being capable of fulfilling the regulators expectations.
SAP Bank Analyzer provides the best answer for tackling these challenges:
Bank Analyzer provides the Fair Value of every Financial Transaction (Over The Counter Contract) and every Financial Instrument (Security or Listed Derivative) with the AFI Module. Additionally, determines the Risk Weighted Assets (Capital Requirements) of every contract, with the Basel III Module.
With information, the Banks Capital Managers can determine contract by contract the Profit or Losses generated by every Contract, and the Capital consumed by it.
Additionally, every contract is categorized by a set of Reporting Dimensions which will provide the basis for Business and Regulatory Reporting. Aggregating bottom up every contract, according to the values of its Reporting Dimensions, the Banks Capital Managers will estimate the Profit or Losses generated by every micro-portfolio, including the performance of the portfolio in stressed scenarios.
Insurance companies, will face very similar challenges with the implementation of IFRS 17, with effective date January 1, 2021, and Bank Analyzer, or in this case Insurance Analyzer, is also the best alternative to support the challenges that will come with it.
We’ll talk about it in a future blog.
Looking forward to read your opinions.
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Kind Regards,
Ferran Frances.
