The adoption of IFRS 9 on 1 January 2018 has changed the impairment model for financial assets, which is now based on the recognition of expected credit losses. A more granular analysis of the quality of performing assets, specifically the introduction of an intermediate category, has resulted in significant additional provisioning, curtailing bank equity. Given the already high level of provisions and the mediocre quality of their lending books (although this has since improved), the cost of transition to IFRS 9 raised further questions for southern European banks. Our analysis shows that the costs can be covered, but that they will be proportionately higher for Italian banks than for their Spanish and Portuguese peers
