IFRS 16 · Banking & Finance

IFRS 16 Lease Calculator
for Banking & Finance

Pre-configured for financial institutions with extensive branch networks. Addresses the regulatory capital impact of IFRS 16 lease liabilities, Basel III/CRR interactions, and prudential reporting considerations.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF

Quick reference card, IBR documentation template, lease assessment flowchart, and audit working paper template. Plus one practical audit insight per week.

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 for Banking & Finance — Practical Guidance

For banks and financial institutions, IFRS 16 creates a unique intersection of accounting standards and prudential regulation. While the balance sheet impact of recognising lease liabilities is proportionally smaller for banks than for retailers or airlines (given the already large balance sheet), the regulatory capital implications are significant. Under the Capital Requirements Regulation (CRR/Basel III), ROU assets attract a 100% risk weight under the standardised approach, directly reducing Common Equity Tier 1 (CET1) capital ratios. The European Banking Authority (EBA) has issued specific guidance on the prudential treatment of IFRS 16 leases.

Measurement Considerations for Banking & Finance

Banking lease portfolios are dominated by branch premises and office space, with smaller portfolios of IT equipment, vehicles, and ATM locations. The discount rate for bank leases is particularly nuanced — while most entities struggle to determine an IBR, banks have ready access to market interest rate data and their own cost of funds. However, the IBR must reflect the specific terms of the lease (secured borrowing, similar term, similar currency), not the bank's unsecured wholesale funding cost. For branch leases, the IBR should approximate the rate the bank would pay for a secured property loan of equivalent term.

ROU Asset Depreciation for Banking & Finance

Branch network rationalisation creates ongoing lease modification accounting under IFRS 16. As banks close branches and shift to digital channels, early termination of branch leases triggers derecognition of the ROU asset and lease liability, with any gain or loss recognised in profit or loss. For leases being restructured (reduced space, shortened term), the standard lease modification accounting in IFRS 16.44–46 applies. Banks must remeasure the lease liability at the modification date using a revised discount rate.

Industry-Specific Considerations

The interaction between IFRS 16 and regulatory capital frameworks requires careful management. Under the CRR standardised approach, ROU assets receive a 100% risk weight, increasing risk-weighted assets (RWA) and reducing capital ratios. Banks using internal ratings-based (IRB) approaches must consider the appropriate treatment. The EBA has confirmed that the transitional arrangements under CRR Article 473a (which mitigate the CET1 impact of IFRS 9 expected credit losses) do not extend to IFRS 16. Banks should also consider the impact on the leverage ratio, where ROU assets increase the total exposure measure.

Worked Example: 10-Year Bank Branch Lease

A retail bank leases a branch premises for 10 years commencing 1 January 2025. Monthly rent is €15,000 payable in arrears. The bank determines an IBR of 3.8% based on its secured property borrowing rate adjusted for lease term. Initial direct costs (legal, due diligence) total €12,000. The bank estimates restoration costs of €45,000 to reinstate the premises at lease end.

Initial Liability
€1,499,178
Initial ROU Asset
€1,556,178
Total Interest
€300,822
Total Payments
€1,800,000

Audit Considerations

Bank auditors should consider the interaction between IFRS 16 and regulatory capital when assessing materiality. Errors in lease liability measurement directly affect CET1 ratios, which are subject to regulatory minimum requirements. ISA 250 (Revised) requires consideration of laws and regulations, including prudential requirements. Engagement teams should coordinate with regulatory capital specialists when auditing significant lease portfolios.

Frequently Asked Questions — Banking & Finance

How does IFRS 16 affect bank regulatory capital under Basel III?
ROU assets are assigned a 100% risk weight under the CRR standardised approach, increasing risk-weighted assets and reducing CET1 and total capital ratios. For banks with large lease portfolios (extensive branch networks), the RWA increase can be material. The leverage ratio is also affected as ROU assets increase the total exposure measure. Banks should quantify the capital impact and consider it in capital planning.
What discount rate should a bank use for IFRS 16 lease calculations?
Banks should use their incremental borrowing rate — not their cost of funds or wholesale funding rate. The IBR must reflect secured borrowing for a similar asset over a similar term. For property leases, this approximates the rate on a secured property loan. For equipment leases, consider equipment financing rates. The IBR should be currency-specific and term-specific. Banks have an advantage in IBR determination due to their access to market rate data.
How do I handle branch closure decisions under IFRS 16?
When a bank decides to close a branch and terminates the lease early, derecognise both the ROU asset and lease liability. Any difference, plus any termination penalty, is recognised in profit or loss. If the lease is being sub-let before termination, assess whether the bank is acting as an intermediate lessor and apply the lessor accounting requirements of IFRS 16. The impairment provisions of IAS 36 may apply to the ROU asset if a branch becomes loss-making before a formal closure decision.
Do ATM placement agreements qualify as leases under IFRS 16?
Apply the lease definition in IFRS 16.9: does the contract convey the right to control the use of an identified asset for a period in exchange for consideration? Many ATM placement agreements provide a right to use a specific location but the bank typically controls how and for what purpose the ATM operates. Assess whether the agreement identifies a specific asset and whether the bank has the right to direct the use. If yes, apply IFRS 16. If the agreement is a service concession or licence, it may fall outside IFRS 16 scope.
How should banks disclose IFRS 16 lease information in their financial statements?
IFRS 16.47–60 requires extensive disclosure, including: depreciation of ROU assets by class, interest expense on lease liabilities, short-term and low-value lease expense, variable lease payments, total cash outflow for leases, additions to ROU assets, carrying amounts by class, and maturity analysis of lease liabilities. Banks must also consider industry-specific disclosure requirements from prudential regulators including Pillar 3 disclosures.

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