The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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How the New Impairment Model Could Affect Banks’ Business Models
Hans Helbekkmo and Pankaj Kumar
Introduction
The New Era of Expected Credit Loss Provisioning
The Marking of CECL Standard: Comments and Reflections
Sources of Modelling Variation in CECL Allowances
A CRO’s Perspective: Implementing, Operationalising and Governing of IFRS 9
Implementing Both IFRS 9 and CECL
Macroeconomic Forecasting and Scenario Design for IFRS 9 and CECL
Technology Solutions for CECL and IFRS 9
Implementing IFRS 9: Quantifying Expected Credit Losses in Retail and Wholesale Portfolios
From Incurred Loss to CECL: Historical Perspectives and Practical Guidance
Loss Forecasting Retail and Commercial Portfolios for CECL
Implementing CECL at Small and Community Banks
The New Impairment Model: Audit and Disclosure Challenges
The New Impairment Model: Governance and Validation
The Impacts of CECL: Empirical Assessments and Implications
How the New Impairment Model Could Affect Banks’ Business Models
Measuring and Managing the Impact of New Impairment Models on Dynamics in Allowance, Earnings and Bank Capital
Integration into Regulatory Capital Frameworks
Implications for Equity and Debt Investors
To date, IFRS 9 adopters have dedicated most of their efforts to addressing technical and methodological issues in their existing models and practices. Many have determined what criteria might result in a reclassification of assets from IFRS 9, Stage 1 to Stage 2: for example, in addition to turning their 12-month loss models into lifetime loss models for both current expected credit loss (CECL) and Stage 2 assets within IFRS 9. Although this work is essential, banks that focus only on the technical aspects of the new rules run the risk of overlooking the business and strategic impact.
The lack of focus on business and strategic impact is exacerbated by the fact that most banks are running their IFRS 9 and CECL adoption programmes from their risk and finance departments, without the active involvement of business unit leaders. Risk and finance functions are developing, validating and running models that produce expected loss numbers. Business leaders’ involvement is very limited in this process, however, which means they have a limited understanding of why decisions are made and repercussions on business and strategy. And those repercussions could be significant, to say the least
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