What Greece and Cyprus tells us about IFRS 9 under COVID-19

29 June 2020: A roundtable discussion on IFRS 9 for banks and audit firms across Greece and Cyprus highlighted the effectiveness of the standard.

The big five audit firms convened with major banks for a wide-ranging discussion on the practical matters around reporting and disclosure. It also included the most challenging aspects of IFRS 9 Expected Credit loss in light of the coronavirus pandemic.

Insights from Greece and Cyprus are particularly valuable given the depth of experience amongst banks and their auditors of dealing with non-performing loans. More recent crises, such as the Greek debt crisis and the 2012/2013 Cypriot financial crisis. These insights fed into the forthcoming update of ICAEW’s guide on COVID-19 and IFRS 9 Expected Credit Losses for Banks.

Participants debated the main aspects of the standard that are causing challenges, focussing on the importance of multiple economic scenarios and assessment of a significant increase in credit risk. The latter is particularly challenging when payment holidays in Greece and Cyprus are amongst the most generous, highlighting the challenges associated with a lack of information about customers.

The current experience of applying IFRS 9 expected credit losses during the COVID-19 pandemic demonstrates whether banks have well implemented the standard. There is a window of opportunity to step back and consider some of the different variables, particularly around segmentation and portfolios.

Segments and groupings should be appropriate and allow banks to understand the impact of the pandemic on specific clients. However, in the absence of high-quality implementation, this information might not be forthcoming from existing models and processes. Some banks will have found that data and portfolios do not convey sufficient information about sectoral effects, responding primarily to macro-economic changes. The roundtable also emphasised the importance of capturing data in the short term and reflecting whether, for example, liquidity, has been built adequately into IFRS 9.

Going forward, banks and their auditors should work to assess what has or has not worked well in each quarter and reconsider policies and procedures as necessary.