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The effects of IFRS 9 valuation model on cost of risk in commercial banks – the impact of COVID-19

Author

Listed:
  • Emil Ślązak

    (SGH Warsaw School of Economics)

  • Magdalena Skwarzec

    (SGH Warsaw School of Economics.)

Abstract
The aim of this paper is to analyse the variables determining the cost of risk in banks after the implementation of IFRS 9 with a particular focus on the COVID-19 pandemic in terms of the quality of credit portfolio. To achieve this we propose a panel research model with quarterly variables determining the cost of risk in commercial banks. The research data was taken from the domestic and European banking sector in 2018–2020 during the initial phase of the COVID-19 pandemic. We show that contrary to regulatory assumptions, procyclical tendencies with a cliff effect have not been eliminated in commercial banks under the IFRS 9 framework. In addition, we observe significant differences in the recognition of loan impairment in the domestic banks versus the EU ones under IFRS 9. However, we demonstrate that IFRS 9 did allow banks to recognise loan impairment reasonably fast in the most acute phase of the COVID-19 pandemic.

Suggested Citation

  • Emil Ślązak & Magdalena Skwarzec, 2022. "The effects of IFRS 9 valuation model on cost of risk in commercial banks – the impact of COVID-19," Bank i Kredyt, Narodowy Bank Polski, vol. 53(1), pages 47-78.
    • Handle: RePEc:nbp:nbpbik:v:53:y:2022:i:1:p:47-78
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    File URL: https://bankikredyt.nbp.pl/content/2022/01/bik_01_2022_02.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    credit risk; cost of risk; IFRS 9; COVID-19;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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