New accounting rules will result in “modest” impact to banks’ common equity tier 1 ratios, with only 13% expecting a drop of more than 50%

By Chisholm Patricia |

Most banks that Moody's Investor Services Inc. rates anticipate a reduction of up to 50 basis points (bps) in core capital ratios after new accounting rules come into event next year, according to a new report from Moody's Investors Service Inc. released on Thursday.

The change will not affect the credit-rating agency's rating of these banks, but it may result in "reassessment of bank capital adequacy," Moody's reports. The applicable rule, IFRS 9, deals with credit loss rules and is required by companies using International Financial Reporting Standards (IFRS), which includes publicly accountable enterprises in Canada.

Most banks in the Moody's survey said the impact on their capital ratios would be modest, with only 13% saying that their common equity tier 1 (CET1) ratios would fall by more than 50%.

"About 39% of banks surveyed expect a decrease of less than 10 bps in their [CET1] ratios on adoption, while 48% expect a decrease of 10 bps-50 bps," the Moody's report says. "Reflecting this, the survey revealed that banks do not expect to adjust their business profiles significantly, although many stated that they plan to adjust loan pricing to reflect the upfront reduction in capital."