By Ugo Aliogo
With less than six months to the implementation of the International Financial Reporting Standards 9 (IFRS-9) deadline, many banks are yet to meet up with the deadline given by the Central Bank of Nigeria (CBN) to move to the new financial reporting regime with effect from 1, January, 2018.
The Director, Banking Supervision, CBN, AlhajiAhmad Abdullahi disclosed this at a business breakfast roundtable in Lagos recently that was organised by the Risk Management Association of Nigeria in conjunction with PAL Pensions, and OlisaAgbakoba Legal (OAL).
According to him, the new reporting standards would help improve banking processes and policies.
He also noted that there was a cut-off date and every stakeholder in the sector was expected to meet up with that date and adopt IFRS-9 as reporting template.
Abudullahi, who was represented at the event by the Project Manager, IFRS Implementation, Banking Supervision Department, CBN, Mr. ChibuikeNwaegerue, said that there was no going back on the deadline because it has been fixed and cannot be shifted.
He stressed that IFRS-9 implementation would require massive investments on consultancy, systems development and trainings.
He explained that one of the key features of IFRS-9 was that coverage had been extended to financial assets measured at amortised cost or reported at ‘fair value through other comprehensive income’ (today’s available-for-sale assets), loan commitments and financial guarantee contracts.
Abudallahi further stated that IFRS-9 requires extensive new qualitative and quantitative disclosures about credit risk management policies, expected credit losses, loan write-offs, and changes in credit risk of the loan portfolio and other financial instruments subject to impairment approach.
He added: “Given the short period, there is need for all stakeholders to come together. This forum has provided the opportunity for the CBN to put all implementation issues for stakeholders to be aware and also created the platform for engagement on how we resolve the issues.
“IFRS-9 requires entities to report ECL in three stages, as deterioration in credit quality takes place after the initial recognition of the loan.
“The Expected Credit Losses (ECL) approach provides incentives for banks to follow sound risk management practices. Delays in identifying, measuring and recognising increases in credit risk can aggravate and prolong bank problems.
“Inadequate impairment policies hampers credit risk management as it leads to delayed recognition and measurement of increases in credit risk, with sudden impact on capital adequacy, when the risk crystallises.”
The CBN had issued an initial guidance note to all the financial institutions on the implementation of IFRS-9.
The guidance note communicated supervisory expectations for the implementation of the new standard, especially in areas where banks are expected to exercise considerable judgment, or elect to use simplifications and other practical expedients permitted under the standard.
The note had also specified information to be submitted to the CBN not later than April 30, 2017 on IFRS 9 implementation projects.
It had also required banks to submit monthly status updates on the implementation projects starting from May 2017.