EBA notes significant efforts in IFRS 9 implementation by EU institutions but cautions on some of the observed accounting practices, especially in the context of the COVID-19 pandemic

  • Press Release
  • 24 November 2021
  • Divergence in some accounting practices is due to the inherent flexibility embedded in the IFRS 9 standard and the limited experience to date.
  • The COVID-19 pandemic pushed IFRS 9 models outside their boundaries, thereby increasing the use of manual adjustments, or overlays, with divergent results on the final ECL amount.
  • Some practices observed, particularly in the context of COVID-19, would deserve further scrutiny from supervisors in particular to ensure a timely assessment of a significant increase in credit risk.

The European Banking Authority (EBA) published today a Report summarising the findings arising from the monitoring activities on the International Financial Reporting Standard (IFRS 9) implementation by EU institutions. The aim of this Report is to assist supervisors evaluate the quality and adequacy of IFRS 9 Expected Credit Loss (ECL) models, in order to contribute to a high-quality and consistent application of the IFRS 9 standard in the EU.  In line with the IFRS 9 Roadmap, the EBA will continue monitoring and promoting consistent application of IFRS 9, as well as working on the interaction with prudential requirements.

Main observations

EU institutions have made significant efforts to implement and adapt their systems to the IFRS 9 requirements since its first application date. However, the level of judgement embedded in the standard leaves open the possibility to use a wide variety of practices. While no single practice turned out to be a strong driver of the ultimate levels of provisioning, some observed practices would deserve further scrutiny from supervisors.

This is particularly relevant as regards the approaches implemented on the Significant Increase in Credit Risk (SICR) assessment, where there is a very limited use of the notion of collective assessment for borrowers with common characteristics, which is unexpected in the context of an environment of high economic uncertainty, such as the COVID-19 crisis.

With specific reference to ECL parameters and model inputs, the IFRS 9 12 month PD estimates and variability generally increased during the pandemic, due to the incorporation of forward looking information (FLI) and their point in time nature. Differences have been observed in the approaches used for the incorporation of FLI, which might have some impact on the severity of the assumptions underlying the scenarios used for the ECL modelling, and which deserve further consideration from supervisors.

Regarding classification and measurement, a wide array of practices was observed in the context of the IFRS 9 business model assessment, where further scrutiny and guidance is deemed necessary. In terms of recognition and derecognition of financial instruments, some discrepancies have been observed in the derecognition of financial assets (like high percentages of recoveries after write offs) and/or recognition of accrued interest.

Furthermore, the EBA observed that a limited number of institutions made use of the IFRS 9 amended transitional arrangements introduced by the ‘quick fix’ of the Capital Requirements Regulation (CRR), representing a CET1 benefit of 119 bps as of December 2020.

The COVID-19 pandemic resulted in extraordinary circumstances that pushed IFRS 9 models outside their ordinary working hypothesis, thereby increasing the use of overlays at the level of IFRS9 risk parameters or directly at the level of the final ECL amount. Going forward, the use of overlays across EU institutions should be subject to continued monitoring in order to understand whether (and to what extent) institutions will adjust their ECL models to incorporate the effects currently captured via overlays/manual adjustments, how many of the overlays will be maintained and for how long.

Next steps

The EBA will continue monitoring and promoting the consistent application of IFRS 9, as well as working on the interaction with prudential requirements. Against this backdrop, the observations included in the Report will be used by the EBA when reacting to the International Accounting Standards Board (IASB) post implementation review of the standard, as well as to feed the reflections at EU level with regard to the previous resolution from the European Parliament on IFRS 9. In parallel, the EBA will continue to work on the integration of the Hight Default Portfolios (HDPs) in the IFRS 9 benchmarking exercise and on its extension to institutions applying the standardised approach for credit risk.


This Report has been published by the EBA on its own initiative, in line with its intention to continue scrutinising the implementation of IFRS 9 in the EU, as communicated in the IFRS 9 Roadmap, published in July 2019. In this context, this Report summarises the findings from the monitoring activities conducted by the EBA, since the publication of its last report in December 2018, including, in particular, the findings stemming from the EBA ‘IFRS 9 benchmarking exercise’ as well as the observations from the qualitative assessment performed by the EBA with the aim of monitoring EU institutions’ practices during the COVID-19 pandemic.


IFRS 9 monitoring report

(7.77 MB - PDF) Last update 30 November 2021

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