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IFRS 9 is an accounting standard published by the International Accounting Standards Board covering the measurement of financial instruments, asset impairment and hedge accounting.
The new standard introduces the concept of expected credit loss accounting, requiring banks to predict the future loss of all assets at the point of origination or purchase, and set aside provisions for these assets. Under the previous regime, IAS 39, banks provisioned for assets only at the point of impairment.
IFRS 9 introduces three stages of impairment. Stage 1 assets, which have undergone no credit deterioration, must have provisions for 12 months of expected losses. Stage 2 assets, where “significant deterioration” has occurred, must have lifetime provisions. Stage 3 assets, which are actually impaired, must have lifetime provisions and a reduction in expected interest payments.
IFRS 9 is part of a wider set of accounting rules that aim to harmonise global standards. The US version of IFRS 9 is the Current Expected Credit Loss (CECL) regime.
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