Banks reporting according to the IFRS standards are faced with far-reaching rules and many are facing an uphill struggle to meet them. What does it mean for the two big banks, CS and UBS?
The International Financial Reporting Standard 9, or short IFRS 9, is as at least as tough to comply with as it is to pronounce, a management consultant once said. Bankers across the world however are not prone to jest when asked about the latest extensions to the standard.
Quite to the contrary: the industry is more or less panic-stricken 18 months before the deadline for the introduction. And even the biggest of the institutes seem a little helpless faced with the new rules, which in particular aim at the credit risks of the companies.
In the Dark
The results of a survey by Deloitte, cited by the «Financial Times» (behind pay-wall), don't make for comfortable reading: almost half of the 91 surveyed big global institutes are in the dark about the new rules.
They don't know what the rules mean for the balance sheet and they certainly don't know how to get hold of the necessary experts to comply with the standard. And the deadline is approaching fast.
Huge Projects Waiting to Be Launched
Implementing IFRS 9 is no mean feat, a further Deloitte study, made available to finews.ch, concluded: «The time is running out for the banks,» the consultancy experts say.
The companies will have to implement the new rules on financial reporting by 2018. To make themselves ready to meet the requirements, the banks have to launch huge projects to coordinate work that needs to be done in IT, risk management and finances.
Get Going, Consultants Urge
«The change in financial reporting will be the most far-reaching in history for many banks,» Deloitte says. IFRS 9 promises to be more important that introducing IFRS as such.
Of course, the new clauses introduced have been devised for good reasons. The norm forces banks to properly hedge against future credit risks, thus reducing the dangers of said risks. The institutes therefore will have to calculate their profit more cautiously.
A sensible improvement keeping the financial crisis and the condition of European banks in mind. But IFRS 9 comes at a difficult moment exactly because European banks are currently under pressure.
Narrowing Capital Ratio
The banks, which have made their homework regarding the norm, warned that they have to increase the provisions for losses for all sorts of investment products by a quarter.
And even worse: the capital ratio is being eaten into by IFRS 9 and will narrow by half a percentage point due to the new standards. For banks struggling to meet the capital requirements of 2019, half a percentage point is a lot to swallow.
Swiss Woes and Joys
UBS and Credit Suisse (CS), the two Swiss giants, are already faced by new rules on capital requirements. They need to find a further 10 billion Swiss francs to comply with the «too-big-to-fail» regulation, according to estimates by the Swiss National Bank.
Asked by finews.ch, UBS confirmed it was also affected by the IFRS-issue and that the new rules will be introduced at group level by 2018. Sources close to the bank said this was possible to achieve.
CS however is not confronted with IFRS changes, because it reports according to GAAP, the U.S. standard. Most new rules don't therefore affect the bank, as little as most U.S. institutes. An advantage given the strength of the U.S. banking industry.
And for once, CS has edged ahead of UBS – presumably prompting some smirks among the much-maligned bankers on Paradeplatz.