Credit risk management in bank: impacts of IFRS 9

IFRS 9 was developed by the IASB to replace IAS 39. During the international financial crisis, the delayed recognition of credit losses identified as a substantial weakness in accounting rules. Both the IASB and the FASB have been requested to modify the existing incurred loss approach, based on the impairment discipline established by IAS 39 and to consider alternative approaches to the recognition and measurement of losses on loans that incorporate a broader information base. The expected loss approach defined by IFRS 9 replaced the incurred loss approach of the old IAS39. The IFRS 9 are accompanied by new regulatory frameworks (BCBS), opinion (ECB), Technical Standards and guidelines (EBA) which do not always provide the same methodological and operational implications of the accounting standard setter. The purpose of this paper is to investigate the Expected Credit Loss Model, its main impacts on the pillars of Credit Risk Management (also concerning to the new prudential supervision framework) and its interdependencies and overlaps with the new prudential supervisory framework (Basel 3) on credit risk. The latter is not always reason in the same terms as the accounting principle and implies the same methodological and operational consequences for the Credit Risk Management activity.