The impact of International Financial Reporting Standard 9 ‘Financial Instruments’ on the financial profiles of the rated banks in the GCC will be manageable, according to a report from S&P.
IFRS 9 is due to be implemented on Jan 1, 2018 and will require banks to take a more forward-looking approach to provisioning. At the moment, banks are required to set aside specific provisions only when they incur losses, or when the counterparty or financial asset defaults on its obligations.
Under IFRS 9, banks will have to set aside provisions in advance, based on their loss expectations. “Our view that the impact of IFRS 9 will be manageable is due in part to the relatively conservative approach that GCC banks already take to calculating and setting aside loan-loss provisions,” said S&P credit analyst Mohamed Damak. “Some banks, for example those in Kuwait, take a conservative approach as part of local regulatory requirements to set aside general provisions for all their lending portfolios.”