Same Same But Different - Credit Risk Provisioning under IFRS 9

We analyse the impact of the adoption of expected credit loss accounting (IFRS 9) on the timeliness and potential procyclicality of banks' loan loss provisioning using granular loan-level data from the euro area's credit register. The results indicate that provisions under the new standard are higher and more responsive to shocks, but the majority of provisioning still occurs at the time of default, and the provisioning dynamics around default events are similar under IFRS 9 and under pre-existing national accounting standards. We also find that capital headroom has a significant impact on provisioning ratios, particularly for loans using IFRS 9. This suggests that less capitalised banks may be at greater risk of being underprovisioned, also due to higher discretion offered by the new accounting standard.

To join the lecture via ZOOM, please contact Melina Ludolph.