The implementation of the International Financial Reporting Standard (IFRS) 9 which became effective in January this year, is beginning to take effect on the books of banks in the country as they set aside more funds as impairment on loan losses in their 2017 financial results.
The 2017 full year audited report of four banks which have so far released their results showed a 12.7 per cent rise in loan provisioning from N264.38 billion to N297.902 billion. With the exception of Ecobank Transnational Incorporated (ETI) which saw a drop in its impairment on loan losses, Guaranty Trust Bank, Zenith Bank and Access Bank all saw increases in their loan loss provisioning.
Approved by the International Accounting Standards Board (IASB) in 2008, the IFRS 9 became operational on January 1, 2018, requiring commercial lenders to change their impairment model from backward looking to forward looking. With implementation of IFRS 9, banks now have to make provisions for excess credit loss rather than incurred loss, as the new policy wants them to take into account their operating environments in making bad debt provisions.
Analysts said the implementation would affect the ability of banks to lend as they would become more selective in their lending. Commercial banks in the country have in recent times adopted a more conservative loan book growth, as they look to trade in government securities to boost profitability.
A look at the 2017 results of the four banks show that the impairment on loan losses of GTB, Zenith Bank and Access Bank had grown by 426, 203 and 57 per cents while that of ETI had dropped by 49 per cent in the last financial year.
GTB made a provisioning for loan losses of N65.29 billion in 2017 as against N12.408 billion which it made in 2016. The managing director and chief executive of the bank, Segun Agbaje had noted that the increase in collective impairment was borne out of the prudent stance of the bank.
The loan book of GTB had expanded by 15.9 per cent from N1.371 trillion to N1.589 trillion as at the end of the 2017 financial year as deposits from customers grew to N1.986 trillion, an improvement of 23.3 per cent over the 2016 figure from N1.610 trillion.
Zenith Bank had also made a provisioning of N98.227 billion in its 2017 financial compared to N32.35 billion which it made in 2016. The bank had cut back on its loan book which was down by 8.2 per cent from N2.289 trillion to N2.1 trillion as at December 2017. The bank had last year grew its deposit base toN3.437 trillion a 15.2 per cent improvement over the 2016 deposit base of N2.983 trillion.
The increase in the impairment of Access Bank was lower compared to GTB and Zenith as the bank made a N34.466 billion impairment on loan losses for the 2017 financial year as against N21.952 billion it made in 2016 representing a 57 per cent increase.
The bank had grown both its loan book and deposit base by 10.2 per cent and 7.4 per cent respectively. Its loan book had grown to N1.995 trillion form N1.809 trillion as deposits from customers rose to N2.244 trillion from N2.089 trillion.
ETI on the other had saw its loan loss impairment drop from N197.68 billion in 2016 to N99.91 billion 2017 as its lending to customers rose slightly to N2.86 trillion form N2.82 trillion while deposit base rose to N4.65 trillion form N4.11 trillion in 2016.
A financial analyst, Panafrican Capital Plc, Moses Ojo, explained that “IFRS 9 compels banks to provide for items they have not been making provisions for before and would eat more deeply into their profits.”