IFRS19 – The first rule you need to know to access credit

Would you like to access credit to finance your business?

Do you have business projects that require liquidity?

By reading this article, you will learn the first rule you need to know on accessing financial assets safely and quickly.

Since we are going to consider some technical notions, we must start from the basics.

Let’s go back to summer 2008, when the biggest financial crisis that dragged the whole world into a global recession began.

In what way this episode affects you on getting financial credit?

The answer is simple.

The biggest consequence was the rise of the popular opinion that the existing accounting rules have contributed, especially in terms of speed, to the worsening of this economic recession.

Why has this thought developed?

Because at that time, very weak banks, that could not detect and calculate losses on loans and other financial assets promptly, had certain accounting standards. After the beginning of the crisis, these regulationss received special attention from legislators and the IASB (International Accounting Standards Board), the body responsible for issuing international accounting principles.

Banks themselves were examined, and with what results?

Inspections revealed weaknesses in the accounting models used, which led to the inforcement of IFRS 9 on 12 November 2009, with a view to improving the problems associated with the way financial instruments are usually accounted for. This framework has been mandatory for all credit institutions since 1 January 2018, but has had and will have an increasingly disastrous impact on companies.

What are the main new features of IFRS 9?

New features of IFRS 9 

It may sound strange, so let’s understand what this is all about.

The introduction of IFRS 9 (International Financial Reporting Standard) seemingly simplified the existing rules  and adjusted some flaws they had.

Let’s look at the standards as they are now :

  • New classification and measurement of financial instruments, based on the Cash Flow logic and the business model adopted by the bank in the management of financial instruments. This determines whether financial activities are carried out to collect cash flow or to sell financial assets (or both).
  • New ‘Impairment’ credit model, to provide more useful information on the credit losses expected from financial instruments.
  • Hedge Accounting’ review of accounting risks, to better reflect the activities in financial reporting.
  • Redefinition of various financial statement formats and its notes, changes in the value of financial instruments measured at Fair Value can no longer be recognized in the income statement.

In addition, a division of credits into three distinct levels called ‘stages’ has been made (see article):

  1. Performing (low credit risk) loss calculated over a 12 months period of time.
  2. Under Performing (average credit risk) loss calculated over a timeframe that covers the whole duration of the financial instrument until it is due (when the risk increases).
  3. Non-performing (high credit risk) includes receivables that have become riskier and that have an objective evidence of impairment.

These ‘Expected losses’ require banks to anticipate the detection of losses at the first signs of deterioration (and is the weak point).

What does this mean?

Basically, the way in which banks will have to make provisions for loans has been reviewed and, very importantly, not only for the ones already impaired such as mortgages, loans, allowances that debtors are no longer able to pay regularly or to settle completely, but also for those that may deteriorate in the future.

On most companies this has a very strong impact.

In what sense?

As mentioned above, with the introduction of IFRS 9, banks are obliged to set aside funds for loans that could deteriorate in the future and, therefore, before deciding whether or not to lend you money, they study, through specific analysis, your ability to pay back not only in the present but in the future as well.


This new accounting standard is the number one reason companies have problems.

How can you demostrate your future capacity of paying back the bank?

This complicates things a lot, especially for SMEs, as it leads to major changes in negotiations with the banking system, where a number of factors are taken into account, obviously implying an extensive reshaping of processes, systems and calculations of future losses. It is very difficult for companies to be unable to analyse their future projection towards the banking world.

A survey carried out this year on a sample of 13,357 small companies in Lombardy proves this: with revenues ranging from 2 to 10 million euros, only 146 companies did not trigger even one of the warning signs required by IFRS 9.

Just about the 1% of companies are safe from this regulation, while the others are outside the parameters and, therefore, their banks’ receivables are deteriorated.

You may be wondering why so many businesses are in danger.

Because, as has been said, the regulation is only intended for banks but, basically, those who are most affected are those companies that do not have an instrument enabling them to measure themselves according to the parameters of IFRS 9.

The consequence, therefore, is that either firms learn to align themselves with the principles of IFRS 9 or they lose all credit lines overnight!

Do you realize what it means for a company to receive no more liquidity from banks and without previous warning?

This being the case, how an you safeguard your business? 

Talking to your accountant? Although it seems a predictable choice, the accountant, despite his professionalism, does not have the right skills to provide you with real help. Otherwise, he would have already informed you, don’t you think?




So what can you do?

Thanks to the Kreadway method (developed by C&G Capital), the fastest and safest way to access credit and develop your business projects, it is possible for you to shield your company from IFRS 9.

The Kreadway method requires a preliminary check-up, followed by an in-depth analysis where the strengths and weaknesses of your company are highlighted and, finally, the application for financing is submitted to the direct partners in the sphere of alternative finance.

In conclusion, today IFRS 9 is a fact to which you must adapt and, above all, you must be able to turn it into an opportunity; C&G Capital can help you to reach this goal.

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