IFRS 9 - Impairment Principles, Modelling Requirements and ECL Framework

2 days
Prague, NH Hotel Prague
    Key points / questions answered:
  • What approach to impairment calculations under IFRS 9?
  • How to calculate 12-month and lifetime Expected Credit Losses?
  • What are the alternative credit risk models for assessing multi-period PDs?
  • How to transition from Through-the-Cycle PDs to Point-in-Time PDs?
  • How to include a sensitivity of credit risk parameters to economic cycles?
  • What are the main implementation challenges and how to deal with them?
  • What strategic impacts should be expected?
The purpose of this seminar is to introduce you to the new mechanism of impairment required by IFRS 9, the new accounting standard for financial instruments, to be implemented by January 1st, 2018. This impairment mechanism includes fundamental changes as compared to the current provisioning process: inclusion of expected credit losses, with possibly lifetime as time-horizon, and in a forward-looking stance.

We start with a brief history of accounting, the creations of the International Accounting Standard Board, the International Financial Reporting Standards, IAS 39 and finally IFRS 9.

Then we carefully position the impairment process, or IFRS phase 2, in the alignment of IFRS 9 phase 1 that addresses the questions of financial instruments classification and measurement. And we uncover Phase 2 objectives, perimeter of application and major characteristics.

Phase 2, impairment, is the answer by the IASB to the concern, expressed by the G-20, that the current provisioning approach for loan losses is "too little, too late". The new expected credit loss model for the recognition and measurement of impairments aims at addressing this concern by accelerating the recognition of losses through a powerful set of new principles.

Once these impairment principles have been described and understood with the help of some exercises, IFRS 9 modelling requirements appear more explicitly. At this stage, we enter the realm of credit risk modelling. We review the major approaches, from loan-losses to regulatory models to credit VaR, with a number of practical exercises.

Each modelling approach is analyzed in regards to IFRS 9 requirements; this prepares our travel along the transition path from existing models towards what is required for IFRS 9 compliance.

Naturally, a specific attention is given to the Supervisor's posture regarding the implementation of IFRS 9 in banks. We review the BCBS Guidance on credit risk and accounting for expected credit losses, and the more recent BCBS consultative paper "Regulatory treatment of accounting provisions - interim approach and transitional arrangements".

Finally, we look at how banks are currently working out their IFRS 9 solutions and the implementation challenges they are facing. A particular attention is given to the technology and data-related issues, and to more strategic considerations dealing with the management of P&L volatility and disclosures.

With less than a year to go until IFRS 9 day-1, each participant has now acquired a clear understanding of IFRS 9 impairment principles and modelling requirements and is able to take away a thorough understanding of his/her priorities.

09.15 - 12.30

Birth and Overview of IFRS 9

  • Brief history of accounting
  • The accounting institutions and the financial crisis
  • Overview of IFRS 9 principles
  • Phase 1, classification and measurement

Impairment Principles

  • Overview of impairment requirements
  • The Expected Credit Losses concept
  • Staging and the notion of Significant Increase of Credit Risk
  • Lifetime PDs and forward-looking stance
  • Expected disclosures

12.30 - 13.30 Lunch

13.30 - 16.30 Credit Risk Modelling

  • Principles of credit risk measurement
  • Credit risk parameters
  • Measuring Probability of Default
  • Portfolio effects and concentration
  • Parametric approaches like IRB models
  • Non-parametric approaches like Credit VaR

Day Two

09.00 - 09.15 Recap

09.15 - 12.30 From Credit Risk to Impairment Models

  • Assessing a Significant Increase in Credit Risk
  • From 1 year PDs to Multi-periods PDs
  • From Through-the-cycle to Point-in-Time risk parameters
  • Risk parameters sensitivity to the state of the economy
  • ECL as the weighted average of multiple scenarios
  • Cost-benefit analysis of possible simplifications
  • Steps towards a fully compliant impairment model

12.30 - 13.30 Lunch

13.30 - 16.30

IFRS 9 and the Regulators

  • Ambition of BCBS on the matter
  • BCBS guidance on credit risk and accounting for ECL
  • Regulatory treatment of accounting provisions
  • Expected impact of the regulation

Implementation Challenges and Emerging Issues

  • Challenges as seen by central banks and supervisors
  • Challenges as seen by banks
  • Challenges as seen by consulting firms and IT firms
  • Challenges as seen by each participant
  • Emerging issues

Evaluation and Termination of the Seminar

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