In its Q3 results, Barclays said: ‘Barclays’ estimated IFRS 9 impact, based on the portfolio as at 30 September 2017, is a decrease in shareholders’ equity of approximately £2bn post tax. This estimated reduction in shareholders’ equity equates to a decrease in tangible net asset value of 10 to 12 pence per share.’

IFRS 9 Financial Instruments is effective for periods beginning on or after 1 January 2018 however, Barclays early adopted the credit provisions of the standard on 1 January 2017. The bank’s income reduced from £334m, including £292m of own credit, to £84m following the early adoption of the own credit provisions.

The bank has previously announced that it will not restate comparatives on initial application of IFRS 9 on 1 January 2018 but will provide detailed transition disclosures in accordance with the amended requirements of IFRS 7 Financial Instruments: Disclosures.

In respect of the impairment and classification and measurement implementation programmes for financial assets, Barclays has continued to prepare for adoption on 1 January 2018, with the focus during 2017 on quantifying impact, model validation and finalising processes, governance and controls.

Barclays said: ‘Based on figures as at 30 September 2017, the expected CET1 impact without transitional arrangements would be an estimated reduction of approximately 40bps. Barclays expects to implement transitional arrangements for capital purposes, currently being finalised by European regulators, which would result in only a proportion of the estimated reduction impacting the CET1 ratio during 2018.

‘The final impact of IFRS 9 is estimated to be approximately 20bps lower than the point in time impact as deferred tax assets are expected to fall below the allowable threshold over time.’

In 2016, a European Banking Authority (EBA) impact assessment across its jurisdiction showed that the impact on Tier 1 capital (CET1) is on average 59 basis points and up to 75 basis points.

Jeroen Van Doorsselaere, VP of risk and finance at Wolters Kluwer, says the reason for this is ‘to more closely align IFRS 9 banks with those banks that are applying the US GAAP variant, the current expected credit loss model (CECL).’

The EBA impact assessment also raised questions about the sophistication of the implementation process at various banks.

The day before Barclays disclosed the expected impact of the new reporting standard, Lloyds Banking Group’s third quarter report revealed that its IFRS 9 implementation is nearing completion with the embedding of new systems and processes.

The report said: ‘It is currently expected that the CET1 capital impact before any transitional relief will be a reduction of between 10 to 30 basis points after taking account of any offset against regulatory expected losses, mainly as a result of additional impairment provisions.

‘As a consequence, on transition IFRS 9 is not expected to have a material impact on the Group‘s capital position.’

IFRS 9 will require banks to make provisions on their balance sheets for expected losses in the future rather than the losses they have already incurred. Andrew Marshall, senior technical partner at KPMG, has previously warned banks and companies alike to prepare for IFRS 9 sooner rather than later due to the potential impact of the new standard.

‘As has been widely trailed, IFRS 9 will have a major impact on the banking sector, not least the change in the impairment approach to the expected credit loss model, which is designed to address the perceived too little too late provisioning that occurred before the last financial crisis,’ he says.

‘Under IFRS 9, financial assets will be classified into three primary measurement categories: amortised cost, fair value through other comprehensive income and fair value through profit and loss. For most corporates, if the terms of your receivables are simple and you do not sell them to collect cash up front then your classifications are unlikely to change. In other words, they will continue to be carried at amortised cost.’

HSBC and Standard Chartered are due to reveal the impact of IFRS 9 in their quarterly reports next week and Barclays plans to publish transitional disclosures during the first quarter of 2018 describing the 1 January 2018 impact of adoption.

Barclays Q3 results for 2017 are available here. 

Lloyds Banking Group’s 2017 Q3 results are here. 

Report by Amy Austin