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January 7, 2013

Banks pessimistic on convergence likelihood

Some 88% of global banks do not believe the world’s accounting standard setters are on track to converge accounting requirements for financial instruments, according to a global IFRS banking survey produced by Deloitte.

The survey sought the views of 70 banks from Europe, the Middle East and Africa, Asia Pacific and North America on IFRS 9.

It found that 76% of these banks thought that the timeline for a final IFRS 9 would be deferred further from its mandatory effective date on 1 January 2015.

As a result, the survey claimed, many banks are delaying the start of their implementation projects until the second half of 2013 or later.

69% of banks questioned preferred the IASB’s proposed loss impairment model to the FASB’s, as in their opinion it would better reflect business performance and have a more favourable regulatory impact; as well as resulting in lower earnings volatility.

However many of the banks argued that the FASB’s proposal would provide better comparability between peers and would be easier to implement than the IASB’s.

Mark Rhys, Deloitte’s global IFRS banking leader, said "Impairment accounting is particularly important for investors and regulators and has implications for capital. A lack of convergence on impairment could inadvertently lead to differing capital needs for IFRS and US banks.

"Capital requirements, which are already increasing in many countries, may rise further to reflect the higher provisioning levels likely to be mandated by both IASB and FASB. This will potentially drive up the cost to banks of providing certain lending products.

"The accounting changes discussed in the survey are being implemented alongside significant regulatory change, lending expectations, low interest rates and recession affecting many banks.

"Until the IASB finalise their impairment proposals, the continuing uncertainty is such that many banks will not make their IFRS9 projects a priority in the near future."

Related Link

Deloitte

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