Challenges of IFRS 9 under COVID-19 crisis

The purpose of this thesis is to analyse provisioning in banks according to the new accounting standard IFRS 9 under COVID-19 crisis, and the difference between provisioning under IFRS 9 and the previous IAS 39 standard in the Czech Republic. We examine the procyclicality of provisioning and income smoothing practices in Czech banks on individual banking groups data and on aggregated total banking sector. We use panel regression and Ordinary Least Squares on quarterly aggregated real data for the period 1Q2008-4Q2021. The provisioning under IAS 39 incurred loss model was procyclical, and therefore IASB introduced IFRS 9 - a new three-stages ECL model to calculate impairment and provisions in a forward-looking manner, which it believed to be countercyclical. First, we find that the provisioning in Czech banks under IFRS 9 still behave procyclically, even though the banks create provisions immediately when the macroeconomic environment deteriorates compared to the delayed provisioning under IAS 39. We discuss a possible solution to the procyclicality problem that could lie in the US GAAP CECL model. Second, we provide evidence that the introduction of IFRS 9 discouraged banks from income smoothing practices via provisions, thus removing some inefficiency of the previous standard