European banks’ implementation of IFRS 9 in the shadow of the pandemic

Abstract

In our study, we analyse the results of the implementation of the new IFRS 9 standard introduced in 2018, through the Non-Performing Loans (NPL) ratio and the factors affecting it, using the quarterly data of 177 European banks for the time period from 2017 Q4 to 2022 Q1. Among the factors influencing the Non-Performing Loans ratio, we analyse the effects of the COVID period, the reclassifications between the impairment baskets (STAGE) and the cost effectiveness (Cost to Income, CIR). As a result of our analysis, we find that the banking regulations of the COVID period and the reclassifications between baskets according to IFRS 9 rules have a significant negative relationship with the NPL ratio, while the Cost to Income ratio has a positive effect on the NPL ratio. Based on our results, we conclude that the implementation of banking supervisory and central bank recommendations, as well as IFRS 9, has been successful during the pandemic and will help banks to properly manage their non-performing portfolio in the post-COVID (and post-war) period.