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IFRS 9: Banks Get Respite As CBN Extends Timing

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As banks commence the implementation of the International Financial Reporting Standards (IFRS) 9 this year, the Central Bank of Nigeria (CBN) said it would be giving the financial institutions some much-needed relief by extending the time they would have to implement stricter accounting rules for bad loans.

With the relief, banks now have four years to absorb impairments arising from the implementation of IFRS 9 accounting standards last year, thereby easing fears that an immediate transition would have severe repercussions for banks’ capital adequacy ratios. IFRS 9 requires them to have enough capital to cover existing losses and potential future losses.

The total provision amount is to be absorbed over the next four years in four equal parts, to cushion the effect, the Central Bank of Nigeria (CBN) said in an emailed response to questions to Bloomberg. Some banks had said the migration would cut as much as 400 basis points from their capital bases.

According to banking analyst at FBNQuest, Tunde Abidoye, most small and medium-sized banks have capital adequacy ratios close to the regulatory minimum. “This is a good development for the banks as it gives them more time to either raise capital or build up more capital from retained earnings over the four-year period.”

Banks with international licenses are required to have a minimum capital adequacy ratio of 15 per cent and those with local licenses 10 per cent. The industry average rose to 12.1 percent in June from 10.2 per cent at the end of 2017.

While the regulator wants to protect the industry from unforeseen shocks locally and abroad following a 2016 recession, many smaller lenders are battling to raise capital.

In September, the central bank revoked Skye Bank Plc’s license, while Access Bank Plc agreed to take over struggling local rival, Diamond Bank Plc in a deal worth about $200 million.

The central bank also plans to introduce new capital rules in the second quarter that would be stricter about what sort of funding qualifies as capital. The rules, which would align the banking industry with the international accord known as Basel III, also require lenders to create buffers that should help them in the case of a crisis.

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