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Implementation of IFRS-9 going to make loans expensive

31-Oct-2016 :

Dubai: The implementation International Financial Reporting Standards 9 (IFRS 9) from January 2018 is a game changer for banks across the world and will impact UAE banks too, said Abdul Aziz Al Ghurair, Chairman of The UAE Banks Federation.

The new regulation strongly affects the way credit losses are recognised in the profit and loss (P&L) statement. While impairments are currently based on ‘incurred losses’, IFRS 9 introduces an approach based on future expectations, namely expected losses (EL) based on risk ratings.

The main impact on banks is the need to recognise expected losses for all financial products, and at individual and grouped-asset levels. Banks will have to update their calculation at each reporting date to reflect changes in the credit quality of their assets. This will significantly increase the number and frequency of impairment quantifications that must be undertaken and the amount of data that must be processed for such purpose.

The ripple effect of IFRS 9 will be felt across organisations. Higher provisioning will force banks to review their capital requirements. Product mixes and business models will also need to be evaluated.

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