Towards a More Stable Banking Financial Position COVID-19 Impacts and IFRS 9 Post-Model Practices “Management Overlays”

In the repercussions of latest worldwide financial crisis that have occurred due to corona virus reasons (COVID-19); unprecedented stressful economic conditions prevailed, coupled with significant recessionary waves reasoned imposed strict lock downs adversely affected most sectors across globe. Based on such adverse conditions, and as banks were used calculate their Expected Credit Losses (ECLs) within provisioning systems (IFRS 9); forward looking projections embedded at models fell short predict COVID-19 hit, well objectively reflect widely spread governmental rescue plans, payment holidays moratoria schemes. Consequently, based challenges, new risk management practices—Management Overlays—have risen help in terms overcoming a systemic uncertainty situation added more hurdles regard forecasting powers. The researcher is discussing how can start using overlays, or post-model adjustments, according each every bank’s portfolio composition, trends, stress testing outcomes, where risks uncertainties cannot be adequately reflected existing models, until global regulators (e.g., central banks, external auditing bodies), main research rating agencies reach agree set updated macroeconomic indicators utilized globally, per region, reflecting era post COVID-19, supporting building robust IFRS 9 world effectively. Therefore, overlays play vital role fortifying stability banking system through: ascertaining adequacy systems, guaranteeing sufficiency holding appropriate capital levels for confronting an pandemic, similar situations future.