KARACHI: State Bank of Pakistan on Wednesday extended the deadline for banks and Development Finance Institutions (DFIs) in implementing International Financial Reporting Standard, IFRS-9 by a year to January 1, 2023, due to difficulties in adopting new rules.
“For banks having asset size of Rs500 billion or above, as per their annual financial statements, as of December 31, 2021, and for all the Development Finance Intuitions (DFIs), SBP has set the revised implementation date as January 1, 2023,” it said in a statement referring to final instructions on IFRS 9.
“Whereas, for all other banks and microfinance banks (MFBs), SBP has revised the implementation date of IFRS 9 as January 1, 2024,” it added.
Earlier, for the implementation of IFRS-9 by banks, SBP had set a deadline of January 1, 2022, which has now been revised at the request of banks that are facing challenges in the implementation of the new standard, it said.
The SBP has been consulting with the banking industry since early 2018 for the adoption of IFRS-9 in Pakistan. IFRS-9 is a global standard issued by the International Accounting Standards Board (IASB).
The standard lays out the accounting treatment of classification, measurement of financial instruments, and impairment of financial assets, the SBP noted.
The SBP said with the implementation of IFRS-9, the existing provisioning requirement, following incurred loss approach, would be replaced by expected credit loss (ECL) provisions that would be based on expected losses on performing as well as non-performing portfolio.
This approach is forward-looking and effectively measures the loan loss provisions based on credit risk models, according to the SBP.
Credit exposures (local currency based) that have been guaranteed by the government and government securities are exempted from the application of the ECL framework.
“This is a significant positive for banks due to the share of the government denominated exposures in the mix of interest earning assets. The government securities comprise 90 percent of the investment mix of banks,” said Taurus Securities in a note.
“On the advances’ front, these exposures include loans to public sector companies mainly in the energy sector as well as heavy periodic disbursements for commodity financing. Nevertheless, we believe that FCY (foreign currency) exposures will be subject to ECL application. This includes eurobonds, global Sukuk bonds etc,” it added.
Almost every major bank has established the requisite infrastructure and is fully prepared for IFRS-9 adoption. In fact, banks have been carrying out parallel reporting for some quarters now, Taurus Securities report said citing industry sources.
The impact of new accounting rules, IFRS-9 adoption is deemed to be very limited or minimal on capital adequacy ratios based on the outcome of impact studies shared by some of the industry players. However, further guidance on the expected impact based on the final guidelines is awaited, the report said.