Evidence on IFRS 9 implementation from a sample of Italian banks and other financial intermediaries

Francesco Giovannini () and Antonio Schifino ()
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Francesco Giovannini: Bank of Italy
Antonio Schifino: Bank of Italy

No 784, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Since its entry into force, IFRS 9 has posed significant challenges to financial institutions, partly due to its principle-based nature, which leaves room for the adoption of a wide range of practices, as confirmed by the COVID-19 experience. Given the importance of a sound IFRS 9 implementation, also for supervisory purposes, Banca d'Italia conducted a survey on a sample of banks and non-bank financial institutions to monitor the approaches adopted during the pandemic. The evidence confirms the use of diverse practices, some of which could hamper a sound implementation of IFRS 9 by leading to underestimated ECLs or delayed stage transfers. These effects would in turn have a negative impact on institutions' own funds and on the indicators used for supervisory purposes. Moreover, a sound implementation of the IFRS 9 impairment model is also key from a financial stability perspective, as the adoption of appropriate provisioning practices helps to mitigate the risk of pro-cyclical effects arising from a possible sudden increase in credit losses during an economic downturn.

Keywords: IFRS 9; Covid-19; banks; non-bank financial institutions; accounting; overlays (search for similar items in EconPapers)
JEL-codes: G21 G23 M41 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-acc and nep-ban
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