Q: What is IFRS 9?
A: IFRS 9 is the International Financial Reporting Standard that replaces the IAS 39.
Q: When does it take effect?
A: It already has. It went into effect January 1, 2018.
Q: Why are they doing this?
A: IFRS 9 was created to simplify and tighten up some of the reporting aspects of IAS 39, particularly with concern to deferment of credit losses on loans and receivables until too late in the credit cycle.
Q: Who all is affected by this change?
A: Banks, credit unions and other financial institutions that issue loans or manage instruments of debt. Many major world markets require IFRS 9, the exceptions being: U.S. (no current plans to adopt), Japan (adoption voluntary, not required) and China (converge at an undetermined future date).
Q: How does this affect us on a daily, operational level?
A: Moving forward, everything will need to be reported according to IFRS 9 standards. This includes classifying both clients by risk level, re-classification of assets according to IFRS 9 categories and more. HERE is a detailed list.
Q: Is my software able to handle these changes?
A: MIMICS has developed the IFRS 9 Option to accommodate these requirements. Contact Us for a free assessment of your specific needs or to see a demonstration.
The MIMICS IFRS 9 Option accommodates all of the new reporting rules and regulations mandated by the IFRS 9 legislation. It allows both clients and loans to be classified individually as low, medium or high risk. It allows reporting of credit scores for each client or counterparty, as well as ratings for each security from the bureau of your choice. It also allows for re-classification into one of the three buckets required by IFRS 9, and, optionally, the module can be configured to perform the provision calculation per your specifications.
For our customers that handle loans, the software:
For our customers that handle portfolios, the software:
The provision calculation will be unique to your individual operations. If desired, MIMICS can configure/customize this calculation to your specifications at our standard hourly rate.
Contact us for a free functionality assessment or to see a demo.
The International Financial Reporting Standard 9 officially went into effect on January 1, 2018. This measure replaces the previously-followed IAS 39.
According to PricewaterhouseCoopers, “IFRS 9 responds to criticisms that IAS 39 is too complex, inconsistent with the way entities manage their businesses and risks, and defers the recognition of credit losses on loans and receivables until too late in the credit cycle.”
In practical terms, IFRS 9 employs an “expected loss” methodology that replaces the “incurred loss” approach of the IAS 39. It also calls for proper classification of clients, counterparties and transactions, and for financial institutions to record data and generate reports based on the new criteria.
Some of the key changes include:
· Classification of clients as low, medium or high risk
· Classification of individual loans as low, medium or high risk
· Reporting credit scores of each client or counterparty
· Obtaining ratings for each security from a rating agency
· Re-classification of financial assets according to IFRS 9 categories:
o Amortized Cost
o FVTOCI (Fair Value Through Other Comprehensive Income)
o FVTPL (Fair Value Through Profit or Loss)
Some of the most impactful changes come in regards to impaired financial assets, including loans. Click HERE for more detailed information about IFRS 9 and loans.
Click HERE to see how MIMICS has you and your software covered for IFRS 9 changes.
When The Fed increased rates on June 13 for the second time this year, they left the door open to more rate hikes before the end of the year, and opened the proverbial can of pundit worms. How many more raises will come? How high will they go? Will the economy continue to grow? What is sustainable?
To get some perspective, let’s look at some historical facts and some recent economic trends:
· Unemployment has fallen every year since 2009, and now currently stands at 4.1%.
· 4.1% unemployment is the lowest rate since 3.9% in 2000.
· The lowest recorded unemployment rate was 1.2% in 1944; the highest was 24.9% in 1933.
· The Federal Reserve likes to aim for the “sweet spot” of between 2 – 5% when setting the federal rate. It is currently 2%. They have signaled that rates will be 2.5% by the end of this year, 3% in 2019 and 3.5% in 2020.
· The lowest rate ever was 0.25% in 2008, the 10th such cut in just over a year. Rates did not go back up until 2015. Since then, they have steadily climbed.
· The highest rate ever was 20% in 1979 and 1980 to combat triple-digit inflation. The rate has not been in double digits since 1984, when it hit 11.75% before dropping again to 8.25% by the end of the year.
· The Dow hit 20,000 for the first time in January, 2017. It is well over 24,000 in July of 2018.
· The all-time low since its inception in 1885 happened on July 8, 1932 (41.22).
· In 2009, the Dow bottomed out at 6,443.27; it has nearly quadrupled in value over the subsequent nine years.
· January, 1966 saw the Dow hit 7,781.53, a number it would not reach again until October, 1995.
· Between 1974 and 1980, inflation hit double digits in three separate years. The only other time the country experienced double-digit inflation was in 1946, the highest rate since recording, at 18.1%.
· Inflation has stayed at or under 4.1% every year since 1991; in 2017 it was 2.1%.
· According to Wikipedia, there have been 13 recessions since the great depression ended in 1933, approximately one every 6.5 years.
· The Great Recession of 2007 – 2009 lasted 18 months, the longest recession since the Great Depression.
Remember all the chatter about the stock market hitting 20,000? People made hats that said “Almost 20,000” it got so close so many times. And then it happened. That was 18 months ago. One and a half baseball seasons later, and the market has risen another 20%.
I think we can all agree that this kind of growth is not sustainable. We are currently in a flow pattern, but an ebb surely awaits somewhere. History suggests that we are even overdue at this point (9 years since last recession) for a setback. The question is not will another recession hit; the question is how severe will it be when it does?
On this, we can only speculate. But for now, the markets are strong, unemployment is low, inflation is reasonable. Most experts agree that we are probably looking at two more rate hikes before 2018 checks out. This seems to keep us on an upward trajectory; so for now, sit back and enjoy the ride.
The MIMICS Loan Management system allows you to originate new loans, disburse funds, process payments received, and manage the closing of loans, along with other types of transactions. The system prints amortization schedules, checks, invoices, statements and a full suite of standard reports. The term of the loan can be fixed or on-demand. Rates can be fixed, variable or pegged to another rate, and interest can be simple or compounded. Different payment schedules can be handled, including interest-only loans, principal paydown, balloon payments, and various combinations thereof. Payments can be based upon a projected loan schedule, or it can be calculated and pro-rated at the time of payment without a fixed loan schedule.
· Interfaces with the MIMICS Loan Origination module for the creation of loans, or loan parameters can be directly entered; produces amortization schedules as appropriate
· Tracks detailed information related to the loan, such as collateral, appraisals, insurance, etc.
· Processes the disbursement of funds via check, ACH and other payment methods
· Receives normal or unscheduled payments; handles underpayments and overpayments; overpayments can be applied to the next scheduled payment, used to pay down principal, applied to escrow, and various other options
· Handles early payoffs, restructuring, and other types of schedule adjustments
· Allows for draws to be made during the term of the loan; limits are determined at origination, and new payment schedules are printed
· Generates forms such as Amortization Statements, Checks, Invoices, Statements, Payment Coupons and Customer Loan Detail Statements
· Produces a variety of reports for tracking outstanding loans, payments due, maturities due, billing statements, etc.
· Allows for late fees to be incurred automatically and manually; the fee amount can be a percentage or a specified amount
· Interfaces with general ledger modules
· Interfaces with the MIMICS Debt Collections module, as well as the MIMICS Portfolio module.
Contact us with any questions, or to arrange a demo of the system.