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Banks urged to brace up for IFRS Nine

By on December 1, 2015

Commercial banks in Nigeria have been advised to put in place the necessary structure that would enable them adopt the International Financial Reporting Standards (IFRS) nine.

Director, Banking Supervision, Central Bank of Nigeria (CBN), Mrs. Tokunbo Martins, who gave the advice, pointed out that the new standard, which becomes effective from January 1, 2018, would enhance investor confidence.

Martins, said this at a breakfast session on the IFRS nine, that was organised by KPMG Nigeria in Lagos recently.

The IFRS nine Financial Instruments  issued on 24 July 2014 is the International Accounting Standards Board’s (IASB’s) replacement of IAS 39 Financial Instruments: recognition and measurement.

The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase.

The CBN Director explained that the IAS 39 had so many complications, which she expressed  optimism the IFRS nine would address.

“We expect that IFRS nine would cause banks to recognise troubled facilities and they would need to have adequate buffers and capital provisioning to cater for troubled facilities should the risk crystallise, like it happened during the global financial crisis.

“Given that the expected loss module of IFRS nine incorporates the largest set of infrastructure relevant for identifying future unexpected credit losses, it would most likely lead to earlier recognition of expected credit losses. As a result, the module better reflects the credit quality of financial assets and therefore addresses the core for strengthening of accounting recognition of loan losses by incorporating a broader range of credit information,” she added.

According to Martins, with the new standards, both investors and creditors, would have more confidence in financial statements.

“We keep having investors, creditors from multilateral institutions and others coming to us to find out if what the banks are reporting as their credit portfolio is actually a true and fair view of the situation, in view of the macro-environment. They are not sure and are uncertain. And I think it is because of things like this. They are fearful that the provisioning are not enough.

“So, that is one benefit we think the IFRS nine would have. IFRS nine addresses many of our supervisory concerns that banks would not be pride  enough in their credit model. So, IFRS nine would address all that because it requires larger loan loss provisioning, reduces loss overhangs and overstatement of regulatory capital.

“The industry right now has on average, capital adequacy ratio of 17 per cent. It also limits the possibility of distributing overstated profits in form of dividends. IFRS nine would reduce capital inadequacy concerns during crisis. It would contribute to more effective market discipline and support financial stability,” she added.

 

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2 Comments

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  2. Paul Madiebo

    December 1, 2015 at 5:10 pm

    Though a laudable idea, it is imperative that I once again advise the CBN to be careful not to overegulate banks as they are a vital catalyst towards promoting economic growth.