UAE Central Bank issues financial reporting guidance

The UAE Central Bank issued guidance to financial institutions on the application of International Financial Reporting Standard 9 to ensure that credit losses due to Covid-19 are appropriately calculated.

The guidance for complying with IFRS 9 – a global accounting standard applied to financial instruments – was issued after a consultation with stakeholders, the regulator said yesterday. It said it proposed “practical solutions to manage the impact of economic uncertainty on the estimation of expected credit losses, while remaining compliant with IFRS 9”.

The guidance is also intended to “ensure transparency and disclosure, contributing to strengthened financial stability in the UAE”, the regulator said.

Last month, as the Central Bank boosted its Targeted Economic Support Scheme package to Dh256 billion, regulatory bodies in the country issued guidance to lenders on handling problem loans during the coronavirus crisis.

The Central Bank and the regulators of the country’s two financial free zones – the Abu Dhabi Global Market and the Dubai International Financial Centre – said “the flexibility embedded in the IFRS 9 framework” should be used when looking at clients’ ability to repay loans.

The regulators said banks should place those unable to make payments due to business disruption into two groups: those only temporarily and mildly affected, and those severely affected.

For the first group facing temporary liquidity issues, the regulators said banks should not reclassify loans as problem loans during the Tess period.

For the second group, companies facing a “sufficient deterioration in credit risk” should have their borrowings migrated to the second stage and classified as problem loans.

However, the regulators said loans should not be downgraded to the third stage – where they are considered impaired – during the (Tess) support period, except in exceptional circumstances “if clients’ business models are no longer sustainable”.