BANK MANAGERS will be expected to defend how they arrived at the probability of default for each loan product and borrower when the International Financial Reporting Standard 9 takes effect.
The Institute of Certified Public Accountants of Kenya (ICPAK) is coming up with guidelines on how common elements of the balance sheet will be treated in order to avoid confusion in the market.
For example, ICPAK will set a common default rate to be applied on government securities to avoid one bank saying it assumed a default probability of one per cent allowing it to declare better performance than a more conservative one which assumes a rate of five per cent.
South Africa proposes the assumed rate of default for government securities at between one and five per cent. Countries that do not have a credit rating such as Burundi, Tanzania and South Sudan will make it even harder for bankers to factor the default probability.