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After the boom of the last few years, the digital asset ecosystem has managed to position itself as one of the sectors of reference and with an exponential growth forecast. At Grant Thornton, we help our clients to explore all aspects of this technology, to create tailored solutions that bring value to the business and address problems and inefficiencies in the business sector.
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On 17th November, the EBA (European Banking Authority) published the second report related to the IFRS9 implementation by EU financial institutions.
The report concludes entities have made relevant progress in the implementation of Expected losses (ECL) models, although the environment is changing and challenging.
Contents
The key findings identified which raise prudential concerns by this body are:
- EBA detected different approaches to determine the quantitative indicators established for SICR (significant increases in credit risk). Also, there is a lack of collective SICR assessment.
- Although overlays allow to the entities to take into consideration risk factors or specific circumstances not capture by models, EBA observed different approaches for the calibration and application levels.
- The assumptions taken by the institutions on the application of macroeconomic factors for the estimation of the forward-looking impact, the use of long forecasting periods and smoothening practices, among others, derivates in a modest forward-looking effect across portfolios. This can prevent to reflect the prospective nature of FWL in IFRS9 final figures.
- The backtesting exercise, although it is developed in the institutions, there are differences reference to the state of their implementation. Additionally, there is a misalignment in the scope of risk factors under consideration (including overlays) and the type of analysis performed. Lack of follow-up actions has also been detected.
EBA continues monitoring the consistency application of IFRS9 following the roadmap established to ensure high quality and consistency implementation.