Reopened is not recovered. What the Hormuz disruption means for IFRS 9
The scale of the disruption in the Strait of Hormuz has caught many institutions off guard, and nowhere is that more apparent than in the way banks account for credit risk, writes Dan Hensel from 4most.
The uncomfortable truth is that credit risk models were never built for a shock of this kind. As a result, pre-conflict assumptions about probability of default and loss given default are now structurally misaligned with conditions on the ground, and too few institutions have fully confronted what that means for their numbers.
Under IFRS 9, banks must reflect reasonable and supportable forward-looking information in their expected credit loss provisioning. Macroeconomic conditions have shifted sharply in a matter of weeks rather than years, particularly around oil prices, trade routes and borrower cash flows. Any institution still running its ECL models on pre-February 2026 assumptions is almost certainly understating its provisions. That’s not a conservative position; it is a governance and audit risk.
What makes this episode so difficult is that credit stress is arriving through several channels at once.
There is direct sector stress in aviation, logistics, tourism, commercial real estate and oilfield services. There is sovereign spread widening, and there is operational disruption hitting borrowers’ revenues at the very moment their input costs are climbing. Traditional models struggle to capture that combination because no historical precedent maps cleanly onto it. The data simply does not exist.
This is where the question of a significant increase in credit risk becomes critical. Finance teams must now judge which borrowers have genuinely deteriorated, often without the granular data they would like. The temptation is to wait for the numbers to confirm what is already visible qualitatively, but by then the institution is behind the curve.
Ahead of the statistics
Our advice is straightforward. Do not wait for statistical models to tell you what you already know.
The IFRS 9 framework is forward-looking by design, and for now that judgement must take precedence over backward-looking model outputs. In practice, management overlays will be the primary tool for most institutions for some time to come.
Overlays only work, however, if they are done properly. A broad, generic adjustment for uncertainty – what we sometimes call a fog of war overlay – will not survive regulatory or audit scrutiny. Supervisors, the ECB among them, have made clear that a generic uncertainty adjustment is not good enough. What is required is something granular and defensible, specifying which sectors, which geographies and which counterparties are affected, and why.
A structured response works best. In the first ninety days the priority is diagnosis, understanding where portfolio exposure actually sits relative to the affected sectors and trade corridors. Recalibration follows, updating macroeconomic scenarios, stress testing key assumptions and quantifying the capital and earnings impact.
That work must then be embedded in a documented governance framework, because auditors will not accept a provision that appears from nowhere. The disclosure obligation under IFRS 7 matters just as much, since these are conditions that existed at the reporting date rather than events to be footnoted away.
A final word on recovery
Reopened is not the same as recovered. Even if the strait opened fully tomorrow, credit stress typically lags an economic shock by six to twelve months, so defaults would continue rising well into 2027. A full normalisation of freight rates, energy costs and credit spreads is unlikely before late 2028 at the earliest.
The structural shift towards resilience over efficiency is already under way, and finance teams should build that into their long-run planning rather than wait it out.
