PETALING JAYA: Migration to International Financial Reporting Standard (IFRS) 9, or its local equivalent, is likely to create operational challenges across many of Asia-Pacific’s banking systems. These issues would have a negative initial effect on capital, and potentially raise the volatility of earnings and regulatory capital ratios, according to Fitch Ratings.IFRS 9 is one of the more significant accounting changes that banks are facing, and would be implemented in 2018 for most major Asia-Pacific markets. It requires banks to switch to recognising and providing for expected credit losses (ECL) on financial assets, rather than the current practice of providing only when losses are incurred.IFRS 9 will also change the way that banks account for a wide range of financial assets. Banks would also need more data on how portfolios perform though the credit cycle, and will need to build complex models of expected losses. Nevertheless, the impact from moving to ECL is likely to vary from bank to bank even in the most prepared systems, reflecting the underlying riskiness of their assets and their own internal system capabilities.

Source: The Star October 05, 2016 03:22 UTC