FPO wavers on deadline for IFRS 9

The Fiscal Policy Office (FPO) has proposed that the Finance Ministry push back a mandatory effective date for specialised financial institutions (SFIs) to adopt International Financial Reporting Standard 9 (IFRS 9), currently scheduled for next January.

The proposed delay is to give SFIs more time for preparation to apply the new accounting standard, an informed source at the Finance Ministry said, adding that SFIs could be required to set aside significant additional loan-loss provisions to comply with IFRS 9.

Moreover, some SFIs have different repayment periods than commercial banks.

For example, the Bank for Agriculture and Agricultural Cooperatives (BAAC) has debt repayment instalments based on annual farming seasons, so the state-backed farm bank lacks the 60-year track record to predict the possibility of future defaults as required by the new accounting standard.

According to IFRS 9, banks are required to predict the possibility of future defaults based on the 60-year instalment period history.

Take Government Savings Bank (GSB) as another example. The bank has set aside a low loan-loss provision, particularly for loans secured by teachers, and it has the burden of additional reserves to comply with IFRS 9.

The FPO has not specified how long the implementation will be postponed, but the delay is unlikely to erode investor confidence because SFIs do not raise funds from overseas, the source said.

GSB president Chatchai Payuhanaveechai said the Finance Ministry will probably let SFIs delay the implementation of IFRS 9 for an additional year to January 2021 because several state-owned financial institutions are not ready.

GSB itself needs to develop a system to comply with IFRS 9 adoption, most likely by 2020, Mr Chatchai said.

The bank still has to estimate the amount of additional loan-loss reserves required, he said.

BAAC president Apirom Sukprasert said the impact of IFRS 9 adoption on the bank will be insignificant, as it has set aside relatively high reserves.

He said the bank has set aside funds to cover 100% of both special mention and non-performing loans, though only a 10% reserve is required in the case of loans overdue more than one month but less than three months.

The calculation of future default possibility is the bank’s main issue with IFRS 9, he said.