CB may go easy on capital if banks hit severely by IFRS 9
The Central Bank this week said they could be lenient on higher capital ratios under the new BASEL III rules but the banks need to convey by how much their profits and capital bases may get eroded from the new accounting standard on loan loss provisions.
Sri Lanka fully adopted the IFRS 9 or the new International Financial Reporting Standard on financial instruments on January 1, 2018, replacing its earlier version of IAS 39 and the application of the standard is estimated to substantially increase the impairment provisions on the loans with a knock-on impact on profits and capital. As a result, some of the banks might find it challenging to meet the elevated capital ratios under the BASEL III, which is slated to come into full effect on January 1, 2019.
Hence, to avoid any likely breach of these minimum capital levels by banks, the Central Bank has asked the banks to provide them with a reliable estimate of the impact on their capital augmentation plans.
“Even in this IFRS 9 process, we have told the banks to provide us with the impacts and we will definitely facilitate with regard to the difficult positions that they are going to face in looking at the capital situation”, Central Bank Assistant Governor Yvette Fernando said.
Speaking at a public – private policy dialogue organized by the Ceylon Chamber of Commerce on Monday to discuss the regulatory and compliance challenges facing the banking sector, she said if credible estimates can be given, the Central Bank can allow staggered application of the capital requirements, which is also allowed by the BASEL III accord.