On March 7, 2019, CCFA Risk Study Group launched its 12th study session on the topic of International Financial Reporting Standard (IFRS) 9. Yicent Chen, VP in BMO Capital Markets, was the host of the study session. It was our great honour to invite Chris Wood, Partner in PwC, Dianna Zhang, VP of Global Risk Management in Scotiabank, and Attila Kovacs, Director in PwC, as our speakers.
2019年3月7日，CCFA风险学习小组开展了第12次的学习讨论会，以国际财务报告准则IFRS9为主题。这次的学习讨论会由蒙特利尔银行的资本市场副总裁 Yicent Chen 担任主持人。我们非常荣幸邀请到了普华永道合伙人Chris Wood，丰业银行全球风险管理副总裁Dianna Zhang和普华永道董事Attila Kovacs担任我们的发言人。
Since the implementation of IFRS9 accounting standard, there has been an increasing attention on what the impact of the new standard is. In this study session, the speakers discussed the key areas that IFRS9 will have potential impact on, and introduced how analytics can help to study the impact. The presentation was led by Attila with valuable comments from Chris and Dianna based on their experiences on various IFRS9 related projects.
In order to more effectively understand the strategic effect of IFRS9, we should look at the impact on allowance, earning and capital all together. It is expected that IFRS9 impairment requirements will likely increase income statement volatility, although the volatility has not been experienced yet as we are operating at a macroeconomic benign period. It should be cautious if the volatility is less than that with the incurred loss model, then actions needs to be taken in future model development.
The key areas of IFRS9’s impact are data management, credit risk management, portfolio strategy, and capital dynamics. For data management, improving data quality is crucial for developing models with more accurate prediction. For credit management, IFRS9 requires more proactive and forward looking credit risk models. For portfolio strategy, IFRS9 impact can be drilled down more deeply into specific business unit or portfolio, and therefore affects future business decisions. For capital dynamics, the financial institutes would consider the impact of IFRS9 and revisit their risk appetites under BASEL requirement and potentially adjust capital planning and allocation. Other considerations of IFRS9 impact are on stress testing and forecasting including adjustment of scenario weights; model risk management by massively enlarging model inventory; and managed services including potential model validation automation and outsourcing.
The second part of the discussion introduced Tableau Software as an effective and useful data analytics and visualization tool for understanding IFRS9 impact. It has user-friendly interface with powerful features such as connecting the expected credit loss (ECL) with earning and profit with various simulated scenario change from baseline to stress; nice visualization package and dynamic functions for quick dive-in analysis. This analytic tool helps to increase understanding of portfolio sensitivities and how provisions would evolve under various scenarios; provide more granular and improved understanding of portfolio risk profiles, loss contributions, and profitability; increase confidence in the capital assessment used to steer management actions and financial planning within the business; improve accuracy of capital assessments and adapt to more sophisticated regulatory requirements and results in better risk management.
We received positive feedbacks from the audience about the study session, and will look forward to the next CCFA risk study session upcoming in May. In the end, we would like to thank PwC for sponsoring the venue and food for the lunch and learn session.
Dianna shared her thought that the current state in IFRS 9 implementation focuses on incorporating PCL and ACl into financial planning and forecasting, conducting sensitivity and scenario analysis. The outlook for the future impact on the industry is to consider hedging and proactive managing.
Next CCFA Risk Study session is tentatively scheduled as below:
Topic: Liquidity Risk Management
Presenter: Ed Medeiros, Managing Director, Group Liquidity & Global Cash Management, Group Treasury
Date: Friday, May 31, 2019
Time: 12:00 pm - 1:00 pm
Place: MacLeod - 63rd floor, Scotia Plaza
Yicent Chen, VP, BMO Capital Markets
Photographer: Di Wang