The impact is real

THERE is no escaping the fact that the new Philippine Financial Reporting Standard (PFRS) - Financial Instruments, more popularly known as PFRS 9, is very challenging and demanding.

Our local universal and commercial banks, in particular, can attest to this as they have been involved firsthand on implementing projects, which may have spanned six months, 12 months, or more.

The transition date of Jan. 1, 2018 has passed, but it is com

- tutions to stay in the process of completing their assessment,

- ment models, and wrapping up their validation work before the December 31 closing period.

At this stage of implementing PFRS 9, has the impact to banks been in line with what has been foreseen at the initial stage of adoption?

Impact on beginning balances

- cial information of some listed banks in the Philippines as published in the Philippine Stock Exchange website, there are two common trends apparent on the adoption of PFRS 9: 1) reduction in surplus, and 2) increase in other comprehensive income (OCI) at the beginning of the year.

While there are no detailed disclosures yet on observed movements, the reduction in surplus may be attributable to possible increase in impairment provision

for loans granted to customers.

Likewise, it is also plausible that portion of the movement may be brought by reclassify- value through OCI on Jan. 1, 2018, which resulted in a positive adjustment to the beginning balance of OCI.

These trends capture the two main phases of PFRS 9: clas-

financial assets, and impairment using an expected credit loss (ECL) model.

Classifying and measuring financial assets

- der PFRS 9 should be based on an entity’s business model. For banks, loans and receivables that comprise the bulk of its

be continuously amortized cost.

classified

at

- cial assets, such as investments in government securities and corporate debt instruments, where we might see a swing on classification from fair value through profit or loss, to fair value through OCI. The key consideration on this instance is that these securities are not held for trading, but rather for collecting the principal and corresponding interest income and at the same time to sell, as deemed relevant.

On a governance aspect, business models for managing financial assets shall be ap-

and be adequately documented.