Norges Bank

Staff Memo

How does IFRS 9 affect banks’ impairment recognition in bad times?

Author:
Henrik Andersen and Ida Nervik Hjelseth
Series:
Staff Memo
Number:
9/2019

IFRS 9 has changed the way banks recognise credit losses. Under IFRS 9, credit impairment shall be based on more forward-looking assessments by including recognition of expected credit losses. The purpose of this memo is to analyse how IFRS 9 affects the path of Norwegian banks’ credit losses in bad times. We analyse the effects of IFRS 9 by calculating and comparing the paths of banks’ credit losses under IAS 39 and IFRS 9 in the period 2001–2017. Our results suggest that IFRS 9 may increase impairment losses both immediately prior to and during bad times with increased credit risk.

Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.

ISSN 1504-2596 (online)

Published 25 November 2019 15:00
Published 25 November 2019 15:00