Impact of the new accounting standard IFRS 9 on major Swedish banks

IFRS 9 is a new accounting standard for financial instruments and introduces a new approach of recognising credit losses, based on forward-looking macroeconomic conditions. This may provide more and better information on banks’ asset quality and credit risks and eventually enhance financial stability. The transitional impact of IFRS 9 on regulatory capital ratios is estimated to be modest for the four major Swedish banks.

This Economic Commentary focuses on IFRS 9 impairment rules and aims to describe what the Expected Credit Loss (ECL) approach under IFRS 9 is, and how it is different from the incurred loss model under IAS 39. The authors also discuss the potential impact of IFRS 9 on banks, including the transitional effect on regulatory capital ratios, especially for Swedish banks, as well as potential long-run effects on financial stability.

In the long-run, if implemented in a sound way by banks, IFRS 9 can contribute to improve banks’ credit risk management, increase transparency on banks’ asset quality and credit risks, and reduce pro-cyclicality through a more timely recognition of credit losses. This may eventually improve financial stability.

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By Niklas Frykström and Jieying Li, who work in the Financial Stability Department of the Riksbank.

The Riksbank’s Economic Commentaries contain, for instance, short analyses and debate articles. The opinions expressed in Economic Commentaries are those of the authors and are not to be seen as the Riksbank’s view.