Impacts of the Transition to the Expected Loss Model on the Portuguese Banking Sector

Round 1

Reviewer 1 Report

The study aims to examine the implementation effects of the International Financial Reporting Standard 9 (IFRS 9), particularly its Expected Credit Loss (ECL) model, on the Portuguese banking sector. It assesses the impact on Loan Loss Allowances (LLAs), own equity, and the Common Equity Tier 1 (CET1) ratio across 13 Portuguese commercial banks.

The study has several contributions in my point of view, including the significance of regulatory measures in smoothing the transition and mitigating potential adverse effects on financial stability as well as the ongoing discussion on the efficacy and implications of the new accounting standard on the banking sector's financial health. However, the paper should be extended regarding the discussions for future research.

Overall, I find the manuscript useful and informative since it provides valuable insights into the early impacts of the IFRS 9 transition on the Portuguese banking sector. It effectively combines theoretical perspectives with empirical analysis, contributing to the broader understanding of the standard's implications. However, expanding the scope of future research and addressing the limitations mentioned could enhance the robustness and applicability of the findings.

Author Response

Thank you for your constructive feedback on our manuscript. We appreciate your insights, particularly regarding the contributions our study makes in understanding the effects of the International Financial Reporting Standard 9 (IFRS 9) on the Portuguese banking sector. We also acknowledge your suggestions for broadening the discussion on future research and addressing the limitations of our study.

In response to your valuable comments, we have revised the last two paragraphs of the "Conclusions, Limitations, and Future Studies" section of our manuscript. 

We trust that these changes meet your expectations and improve the manuscript, making it a more comprehensive resource for readers interested in the impacts of IFRS 9 on the banking industry. Again, thank you for your thoughtful feedback and for helping us strengthen our work.

Author Response File: Author Response.docx

Reviewer 2 Report

I’d like, first of all, to express my gratitude for the time you spend reviewing the paper entitled ”Impacts of the transition to the Expected Loss Model on the 2 Portuguese banking sector”, and for the pertinent comments that gave weight to the analysis made.

However, I would like to point out that the study has some limitations, as the authors also acknowledge. The main limitation is given by the fact that the study sample is relatively small and the area of analysis is limited to a single jurisdiction — Portugal, making the conclusions indicative rather than generalizable. These limitations, even if the research effort was important, make the relevance of the study relatively low.

Also, considering that we are in the year 2024, I consider that Figure no. 1 of the "Literature review" can (must, for accuracy) be completed with a few more temporal dates: 2020 (the year of the beginning of the financial crisis induced by the pandemic crisis COVID-19) and 2023 (the year of implementation of BASEL IV or, as it is also called, BASEL 3.1).

At the same time, in my opinion, the "Conclusions, Limitations, and Future Studies" part must be constructed more carefully. The part between line 413 and line 420 is a construction more suitable for introduction rather than conclusion:

”The study aims to analyse the impact of adopting the IFRS 9 ECL model on the level of LLAs in loans, own equity, and the CET1 ratio of Portuguese banks, on January 1, 2018, designated day one. The study focused on thirteen Portuguese commercial banks, selected from a pool of fifteen banks from the Portuguese Banking Association, excluding two due to lack of data. All data were manually collected from the consolidated reports and accounts for 2017 and 2018. The adopted methodology was based on approaches adapted from previous studies, such as Dantas et al. (2017) and Groff & Mörec (2021), comparing means of the same sample in different contexts.” (413-420)

So, after reviewing this manuscript, I think the research is suitable for publication after a small correction. Also, I believe that the research effort was beneficial, and I urge the authors to continue this effort by developing it out in future research.

Author Response

Thank you for your thoughtful and detailed feedback on our manuscript titled "Impacts of the transition to the Expected Loss Model on the Portuguese banking sector." We sincerely appreciate the time and effort you have put into reviewing our work and offering valuable insights that have indeed enriched our analysis.

Following your suggestion, we have updated Figure 1 in the "Literature Review" section to include additional temporal markers for the years 2020, marking the onset of the financial crisis induced by the COVID-19 pandemic, and 2023, corresponding to the implementation of BASEL IV. We agree that these updates are essential for maintaining the accuracy and relevance of our study within the context of recent global financial developments.

Regarding the segment of text between lines 413 and 420 that you recommended adjusting, we have carefully considered your advice. After reviewing similar papers in our field, we have decided to retain this brief contextual framing in its current location. We believe this section serves as a valuable bridge, connecting the aims and methodology of our study with the broader discussion and findings presented. This approach is consistent with conventions in our research community and aids in setting a clear stage for the study's contributions and limitations as outlined later in the manuscript. We hope that these adjustments and our rationale for maintaining certain elements of the text as is meet with your approval and enhance the overall quality and coherence of our manuscript.

Your encouragement for continued research in this area is greatly appreciated, and we are committed to further developing our work in future studies.

Thank you once again for your constructive critique and support.

Author Response File: Author Response.docx

Round 2

Reviewer 1 Report

Well done.