Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Accounting and auditing
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Not applicable
Disclose name of institution / entity:
Type of submitter:
Competent authority
Subject Matter:
IFRS 9 Transitional arrangements - Calculation of the amount available for CET1 add-back

When assets were measured at amortised cost in accordance with IAS 39 then classified as FVTPL under IFRS 9, should they be included in the calculation of the ‘day 1’ static amount to be added back to CET1 as set in Article 473a(2)(b)?

Background on the question:

Pursuant to Article 473a(2) inserted by Regulation (EU) 2017/2395 amending Regulation (EU) No 575/2013 (CRR), the first part of the value to be added to CET1 related to the initial transition, according to paragraph 2, should be the difference between the total Expected Credit Loss at transition date (1 January 2018) reduced by the amount of impairment losses the day before transition date (31 December 2017).

For assets which were measured at amortised cost under IAS 39, but will be reclassified to fair value through PL under IFRS 9, there will be no expected credit loss at the transition date; as such there will be a reduction in the total impairment stock.

Date of submission:
Published as Final Q&A:
EBA Answer:

In accordance with Article 473a(2)(b) of Regulation (EU) No 575/2013 (CRR), inserted by Regulation (EU) 2017/2395 amending the CRR, institutions shall calculate the day 1 static impact of the IFRS 9 provisioning requirements as the greater of zero and (i) reduced by (ii) (both calculated on an after-tax basis):

(i) the sum of the 12-month expected credit losses (IFRS and the lifetime expected credit losses (IFRS as of 1 January 2018 (or date of initial application of IFRS 9); and

(ii) the total amount of impairment losses on financial assets classified as loans and receivables, held-to-maturity investments and available-for-sale financial assets (other than equity instruments and units or shares in collective investment undertakings) determined in accordance with paragraphs 63, 64, 65, 67, 68 and 70 of IAS 39 as of 31 December 2017 (or day before date of initial application of IFRS 9).

Article 473a(2)(b) of the CRR does not refer to impairment losses on an exposure-by-exposure basis, but rather refers to the total amount of impairment losses. The only restriction is that the calculation shall be made separately for exposures subject to the standardised approach (Chapter 2 of Title II of Part Three of the CRR) and exposures subject to the IRB approach (Chapter 3 of Title II of Part Three of the CRR).

Thus, for the purpose of calculating the day 1 static amount referred to in Article 473a(2) of the CRR, the impairment losses under IAS 39 on all financial assets referred to in Article 473a(2)(b)(ii) should be considered in the calculation, including financial assets that are subsequently reclassified at fair value through profit or loss (FVPL) under IFRS 9.

Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

Update 26.03.2021: This Q&A has not yet been reviewed by the EBA in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).

Update 28.10.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.