Adoption of IFRS 9 and Corona Outbreak

Global outbreak of Coronavirus and rigorous protection measurements by governments to contain further spread of the virus has placed economies and businesses under huge pressure.

These measurements, which, in some countries are as extreme as lockdown of entire country and businesses, cause an unprecedented slowdown of business activities and economy. Most governments are offering a range of stimulus; cutting interest rate, quantitative easing, delaying tax collections and loan payments, etc., to mitigate the effects of such measurements on businesses and economy.

Banking sector as a credit provider plays an important role in growth of any economy could face more businesses unable to repay their loans as a result of such slowdown. IFRS 9 Financial Instruments is effective on or after January 1, 2018- Central Bank of Iraq adopted this standard on the same required effective date. Under implication of IFRS 9 banks would be more subject to changes in economic cycles.

Moody’s Analytics 2015 survey has find out that provision levels are expected to substantially increase under IFRS 9 which it is due to the procyclicality of this standard. Banks have to estimate and book an upfront forward looking expected loss over entire lifetime of loans.

In the current situation, which circumstances have materially changed as a result of spread of coronavirus, higher provisions are required under the new standard. This issue, consequently, not only reduces the ability of banks to open new lines of credit, but also could freeze huge part of stimulus offered by governments in provision of banks instead of companies who striving for credit to cope with the virus outbreak.

Though the current situation alone could not be a proper base for judgment, but then again could be a good test for the IFRS 9 and the impact of its adoption on banking sector and economy which requires further academic research