GCC lenders can man­age change to IFRS

S&P sees lit­tle im­pact from any higher pro­vi­sion­ing

The National - News - Business - - The Region - Mah­moud Kassem mkassem@then­ational.ae

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.

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