IFRS 9, the new set of accounting rules on financial instruments, is forcing banks to think differently. And that’s a good thing. Banks are used to measure financial assets at either fair value, which is an estimate of the potential market price, or amortised cost – as the name suggests, this cost considers amortisation of the fixed asset.
Under new IFRS 9 rules, financial institutions need to make provisions for future estimated losses on their balance sheets and move away from an incurred loss to an expected loss model. This forces banks to estimate and recognise future losses on a 12-month basis, making forecasting a fundamental tool in the lending process, which gives financial data platforms like Credit Vision a pivotal role in the game.
Increased accounting complexity may raise another important question for banks: is it worth investing in borrowers that show a material loss expectation? Inevitably, companies with a riskier investment profile such as those operating in cyclical sectors may seek new sources of financing. That creates attractive investment opportunities for a alternative lenders with a stronger risk appetite.
The introduction of IFRS 9 is accelerating a process of bank decentralisation, already in progress in Europe, by making it easier for new institutional investors to enter the lending arena and capture those financing opportunities that banks will no longer want or be able to reach. An increasing supply of capital outside the traditional banking channel is very good news for corporates, especially SMEs that represent the backbone of European economy.
IFRS 9 became effective on January 1 2018, officially replacing IAS 39.
Credit Vision operates the next generation Saas-based financial data platform for the corporate debt markets to access, aggregate and analyze private company financials, and generate actionable insights from such data.
The company has been awarded a UK Government grant for technology innovation and it is backed by a syndicate of expert investors in private equity, corporate credit, financial data and technology.
Edith FishtaVice President of Media CoverageEdith.Fishta@credit-vision.comTel. 020 3948 6020
< < Back to News & Views