Implementation of IFRS 9 by Greek banks ‘credit positive’, Moody’s says

The adoption by Greek banks of International Financial Reporting Standard 9 (IFRS 9) strengthens their ability to sell non-performing loans without incurring significant losses, Moody’s rating agency said in a report released on Monday.

The credit rating agency, in its Moody’s Credit Outlook report said that last Wednesday, Greek banks such as Piraeus Bank, National Bank, Alpha Bank, Eurobank and Attica Bank announced preliminary data on the effect of the January IFRS implementation.

The data showed that the application of IFRS by Greek banks translates directly into an increase in their provision for loan losses of around 10 pct on average, increasing the coverage ratio of their NPEs to about 55 pct from 50 pct in the fourth quarter, which is positive for their credit rating.

Additional provisions will help banks reduce their large stock of NPEs by around 40 pct in the period 2017-19, according to their commitment to the Single Supervisory Mechanism of the European Central Bank (ECB), Moody’s said. Higher projections will make it easier for banks to sell NPEs on the secondary market without incurring significant losses as well as future write-offs of non-serviced lender exposures with high leverage or unsustainable lenders, Moody’s said.

However, it added that Greek banks will continue to face a risk of implementation in terms of reducing their NPEs amid yet another difficult but improving operating environment in Greece. As most of the reduction in non-performing exposures should be made this year and the following year, Moody’s estimates that the implementation of IFRS 9 will have an impact of 5.4 billion euros on the capital position of Greek banks, it will reduce their core capital ratio (CET1) by an average of 300 units (five percentage points) from a CET1 average of around 16.5 pct in the fourth quarter of 2017. The direct result for 2018 will be limited to about 15 basis points, because only 5 pct of these additional provisions will affect supervisory capital.

Greek regulators give the possibility of a five-year implementation period so that banks’ supervisory capital can fully absorb the impact. This means that 5 pct this year will increase to 15 pct in 2019, 30 pct in 2020, 50 pct in 2021, 75 pct in 2022 and 100 pct in 2023, Moody’s said.