Same same but different: Credit risk provisioning under IFRS 9

Arbeitspapier

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. We use granular loan-level data from the euro area's credit register and investigate both firm-level credit events and macroeconomic shocks (2020 COVID-19 pandemic, 2022 energy price shock). We find that provisions under the new standard are higher before default and more responsive to shocks. However, the majority of provisioning still occurs at the time of default and the dynamics around default events are similar to pre-existing national standards. Additionally, banks with a larger capital headroom provision significantly more, particularly for loans using IFRS 9. This suggests a higher risk of underprovisioning for less capitalized banks.

Object Details

• ISBN: 978-92-899-6126-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2841

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: bank regulation ; financial stability ; loan loss accounting ; credit risk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Behn, Markus ; Couaillier, Cyril
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2023

Further information

• DOI: doi:10.2866/846
• Handle: http://hdl.handle.net/10419/278673
• Last update: 10.03.2025, 11:43 AM CET