Course Agenda

Day 1

 Introduction

● Overview of IFRS 9

● Interaction with other IFRS standards

Financial Assets Recognition

● Financial assets classification under IFRS 9

● The SPPI criterion

● The business model criterion

Working example: Loan at amortised cost

Working example: Bond at FVTOCI

Working example: Bond at FVTPL

● The fair value option

● Recognition of equity instruments

● Recognition of investments in funds

● Investments in tranched instruments

● Reverse repos. Treatment of collateral

● Financial assets denominated in foreign currency

● Reclassifications

Financial Liabilities Recognition

● Financial liabilities classification under IFRS 9.

● The fair value option

● Accounting for repos

● Recognition of own debt repurchases

● Liabilities in foreign currency

Impairment - IFRS 9 Model Overview

● Instruments within scope

● The three stage model

Working examples: Recognition of impairment charges through the three stages

Instrument at amortised cost:

Instrument at FVTOCI:

Expected Credit Losses

● 12-month expected credit losses. Initial recognition/presentation of assets

● Lifetime credit losses

● Time value of money

● Expected life versus contractual period

● Collateral

● Exceptions: 12m PD as proxy for changes in lifetime credit losses

● Exceptions: Low credit risk

Regulatory vs. Accounting Expected Credit Losses

● Point-in-time vs through-the-cycle

● Differences in EAD, PD and LGD

● Regulatory treatment of provisions under the Standardised and the IRB approaches

● Transitional arrangements

Impairment - Significant Increase in Credit risk

● Link with PD

● Individual vs. portfolio level. Grouping of individual items      

 ● Missed payments vs. probability of default

Case study: BNP Paribas qualitative and quantitative criteria

Case study: UBS significant increase in credit risk

Day 2

The regulator (ECB) view - Significant Increase in

Credit risk

● ECB methodology for SICR triggers

● Asset quality review on IFRS 9

Impairment – Default and write-offs

● EBA definition of default

● Transfer to Stage 3. Indicators that an instrument is credit impaired

● Collectively assessed loans

● Individually assessed loans

● Accounting for write-offs

Modelling challenges

● Scoring systems vs. internal ratings

● Practical challenges related to retail products

● Practical challenges related to non-linearity

Case study: Modelling PDs for residential mortgages

Case study: modelling wholesale portfolios

Off-balance Sheet Financial Instruments

● Loan commitments

● Financial guarantee contracts

● The fair value option

Case study: Bank of America – credit card recognition

Impairment - Purchased or Originated Credit Impaired

Debt Instruments

● Definition of “credit impaired”

● Initial and subsequent recognition. Credit-adjusted effective interest rate

Modifications / Forbearance

● Modifications

● Derecognition vs continuation”

● Exiting stage 3: Cured periods

The auditor’s View - IFRS 9 Assurance

● General areas of scrutiny

● Impairment – red flags

Stress Testing and IFRS 9

● Types of stress tests

● Bottom-up approach

● Link with IFRS 9 scenarios

● EU-wide stress tests

IFRS 9 – What’s Next

● Pending fine tuning

● Backtesting challenges