GCC lenders can manage change to IFRS
S&P sees little impact from any higher provisioning
The rating agency S&P Global Ratings said yesterday that a new accounting standard that will make banks set aside money to cover bad debts in advance of booking any loss will be manageable for lenders in the GCC and will not grossly impact their ability to lend, as they are already conservative when it comes to provisions.
The new accounting standard, the International Financial Reporting Standard (IFRS) 9, which comes into effect on January, 1 2018, will require banks to take a more forward-looking approach to provisioning and instead of booking losses when they happen they will need to set aside cash based on their expectations of what debt may sour. “Our view that the impact of IFRS 9 will be manageable is due in part to the relatively conservative approach that GCC banks already take to calculating and setting aside loan-loss provisions,” said Mohamed Damak, a credit analyst at S&P Global Ratings. “Some banks, for example those in Kuwait, take a conservative approach as part of local regulatory requirements to set aside general provisions for all their lending portfolios.”
The rating agency estimated that banks which they cover across the GCC will have to set aside extra provisions that are equivalent to 17 per cent of their net operating income after IFRS 9 is implemented.
Within the region, banks in Kuwait are likely to be least affected by the new regulations because the financial regulator in that country sets the bar high for banks when it comes to provisions. The most affected banks would be in Qatar, where a number of lenders have observed a significant deterioration in asset quality amid the economic downturn of the past couple of years because of low energy prices.