From 1 January 2023, all Romanian banking and non-bank financial institutions (NBFIs) will have to comply with the international financial reporting standards IFRS 9, therefore a new set of challenges in a tense context where high inflation, which will translate into higher interest rates, could lead to additional provisioning.
This is precisely the context in which Ziarul Financiar together with business solutions provider Loxon organized a webinar on Thursday to discuss this transition to IFRS 9. Loxon has a presence in several countries and its portfolio in Romania includes some of the largest banks, such as BCR, Raiffeisen, UniCredit, as well NBFIs and leasing companies.
“When I talk about what’s next and the impact of IFRS 9 with CEOs and CFOs from other countries, not just Europe, one thing is certain: central banks will want increasingly automated, audited and controlled processes so that they can have not only a very clear picture of the provisioning regimes of individual institutions, but also an overview of the entire financial services industry,” Tamás Erni, CEO of Loxon, said at the webinar.
The debate was attended by representatives of Loxon, as well as business consultants from Deloitte, EY and Mazars Romania and leaders from the Romanian banking sector.
Discussions revolved around the alignment of banking and non-bank financial institutions to the international financial reporting standard IFRS 9. The recording of the webinar can be watched on the Facebook page of the Ziarul Financiar.
“We now have legislative levers that cover the taxation aspects of IFRS and in particular IFRS 9, among others. Before January 1, 2023, I believe that non-bank financial institutions will be ready to meet the challenge,” said Alexandra Smedoiu, partner at Deloitte Romania and president of CFA Romania, the chartered financial analysts’ association, who also brought up the perspective of taxation in the context of the transition to this financial reporting system.
Georgiana Nita, associate partner of EY Romania, explained what the transition process to IRFS 9 means for non-bank financial institutions.
“For non-bank institutions, the implementation of IFRS means a two-part process: the first concerns the preparation of IFRS reporting for 2020-2022, in parallel with financial reporting. The second entails the implementation of IFRS principles in accounting systems, policies, procedures”, Georgiana Nita said.
Invited to the webinar “ZF/Loxon: The IFRS 9 Challenge. Will you be ready by 2023?”, Balázs Gyutai, business line manager of Loxon Solutions, a subsidiary of the Hungarian banking software group of the same name, detailed the IFRS 9 principles.
“The transition to IFRS 9 is an extremely complicated task, involving the preparation of IFRS 9 financial statements, changes to previous accounting standards and approaches to credit risk classification and measurement, as well as the inclusion of macroeconomic adjustments. There is also a major challenge when it comes to implementation and delivery demands in IT. We believe we are dealing with a complex landscape.”
Gabriel Serbanescu, managing director, Loxon Romania
♦ The webinar aims to provide key inputs and best practices on the successful implementation of such regulations as IFRS 9.
♦ Experts from various fields come with recommendations and expertise on the impact and on how to manage this implementation of IFRS 9 in this new regulatory framework that becomes mandatory for the non-banking area in Romania as of 2023.
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Tamás Erni, CEO, Loxon:
♦ I am intrigued about what is happening now in China because it reminds me of the starting moment of COVID-19. There were news reports in 2019 that a new virus had emerged in China, but it was far away and there was no need to worry. Within weeks, it appeared in Europe, making me wonder if it could trigger a new wave. I don’t see a direct relationship between IFRS 9 and COVID-19. But because of inflation and possible high volatility in the economy, we will have a direct impact on credit risk (…) Through these indirect aspects, I see a very strong relationship between a potential new wave of COVID-19 and IFRS 9.
♦ IFRS 9, fortunately, is quite flexible in nature. Thus, IFRS 9 regulations will be adjusted according to the new conditions, whether it is COVID-19 or rising inflation.
♦ IFRS 9 is a big step in the banking industry. It is more important now, when we all see what is happening to the economy, inflation continuing to rise – and everyone expects a tightening of lending conditions in the coming months. There is debate about the direction the economy will take, but it is certainly time to have a configuration regime that is ready for the changes we expect in the economy. That is what IFRS 9 is all about.
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Monica Curea, director, Accounting Division, Raiffeisen Bank Romania:
♦ First of all, the bank needs to manage the relationship between loan impairment and capital regulation to avoid a capital shortfall. Talking about the last part of IFRS 9, the most important impact was provided by the overlaps we had to forecast on the effects generated by COVID-19. Going forward, the use of overlaps across institutions is subject to monitoring both by us and by supervisors and should be limited gradually. Therefore, the biggest challenge in IFRS 9 is related to the modules to be captured in the new reality.
♦ We are looking at inflation and the new economic reality. An important issue to mention is related to the quality and validity of data in the IFRS 9 model.
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Razvan Butucaru, partner, financial services & advisory leader, Mazars Romania:
♦ In terms of the readiness of non-bank financial institutions, I think there is a wide range of expectations. There are institutions that are part of larger groups with a certain level of experience on IFRS implementation. However, we have also encountered difficulties here, as companies sometimes do not have the necessary data and cannot apply the models at group level.
♦ If we talk about non-bank financial institutions at the local level, there are more difficulties with regard to mindset and level of preparedness. IFRS is primarily a change in the reporting mindset, so it requires compliance with the reporting framework, which impacts many aspects of financial statements (…) Overall, I think the impact will be positive, and there will be an alignment towards banking institutions, which already report under IFRS.
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Balázs Gyutai, business line manager of Loxon Solutions:
♦ The transition to IFRS 9 is an extremely complicated task, involving the preparation of IFRS 9 financial statements, changing previous accounting standards and approaches to credit risk classification and measurement, incorporating macroeconomic adjustments. There is also a major challenge if we talk about implementation and delivery demands in IT. We believe we are dealing with a complex landscape.
♦ In terms of changing macroeconomic factors, I think (glass box solutions – i.e.) are one of the main advantages that allow one to have a flexible solution and react to changing market conditions and portfolio changes.
♦ In terms of services delivered (…) we have to talk first of all about the ability to have all the necessary information in the system, information about clients, cash flow, etc. Regarding the core of the system, the first part refers to the IFRS 9 accounting functions we can provide, including business models and SPPI (solely payments of principal and interest) tests.
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Georgiana Nita, associate partner, financial accounting advisory services, EY Romania
♦ IFRS means a better, truer and more complete view for financial reporting. Several companies and financial institutions in Romania, in which public interest is high, are already applying IFRS as a basis of accounting. For non-bank institutions, the implementation of IFRS means a two-part process: the first concerns the preparation of IFRS reporting for 2020-2021-2022, in parallel with financial reporting.
♦ The second entails the implementation of IFRS principles in accounting systems, policies, procedures. For the first part we saw that the main challenges were identifying the differences between IFRS and local legislation.
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Alexandra Smedoiu, partner, Deloitte Romania, and president of CFA Romania
♦ From 2023, annual accounting reports become IFRS. It is very important for non-bank financial institutions to get their calculations right for the adjustment.
♦ One of the challenges that comes with the transition to IFRS is tax. Here we have the experience of the transition of financial institutions to IFRS. Fortunately, tax legislation now contains amendments that are designed to cover this transition.
♦ We now have legislative levers that cover the taxation aspects of IFRS and in particular IFRS 9, among others. Before January 1, 2023, I believe that non-bank financial institutions will be ready to face the challenge.
