New reporting standards for banks in effect

NEW REPORTING RULES for banks and financial firms will formally take effect this year, which stand as the equivalent of global standards for pricing financial instruments.

The Bangko Sentral ng Pilipinas (BSP) has formally adopted the Philippine Financial Reporting Standards (PFRS) 9, which specifically covers financial instruments held or issued by local players.

“The policy sets out the supervisory expectations in classifying and measuring financial instruments and in recognizing impairment to promote prudence and transparency in financial reporting,” the central bank said in a statement sent over the weekend.

The latest standards are the counterpart of the International Financial Reporting Standards 9, which is a global set of rules prescribing how to account for financial instruments held by banks and similar institutions.

Under the PFRS 9, entities need to classify and measure financial assets at either its amortized cost or fair value.

The PFRS 9 should cover all financial reporting starting Jan. 1. The central bank has already given notice to banks and supervised entities about the adoption of these standards as early as 2010.

With the new issuance, bank officials are required to “assess the impact” of the new accounting standards on their business strategies and risk management systems as they update their reporting processes.

“Specifically, the Bangko Sentral will evaluate the consistency of sales activities and metrics being used in monitoring the performance of financial instruments with the business model for holding the instrument. This will align the accounting treatment with risk management strategies and is seen to strengthen governance over the reporting system,” the central bank said.

Among the changes include the “early recognition” of a firm’s allowance for credit losses, which should come even before actual loan defaults. The central bank, however, said this has been put in place through prior regulations for credit risk management.

Firms with simple operations may adopt straightforward loan loss models compared to those with more complex business structures.

S&P Global Ratings said they expect the transition to the PFRS to be “moderate and manageable” for Philippine banks, as they stand ready to adjust given favorable credit conditions and ample capital buffers to ensure sound financial footing.

The Philippine banking system is seen to remain strong and stable given healthy profits and improving asset quality, the debt watcher said. •