THE ARAB MONETARY FUND (AMF) IS ORGANIZING THE 33RD MEETING OF THE ARAB BANKING SUPERVISORY COMMITTEE (AFCA) ON 1 AND 2 MAY 2019 IN ABU DHABI, UNITED ARAB EMIRATES

Bank's Profile

• The Bank has assigned Ernst and Young as the Bank’s external auditors for the years 2017- 2019.
  
  
• The Bank has obtained the PCI Security License making it the first Bank In Iraq to obtain such a license.
  
  
• The Bank has continued its investment and development in its mobile banking application through the provision of additional services, most notably the ability to execute internal transfers (RTGS) within Iraq through this application making IDB the first Bank in Iraq to offer this service.
  
  
• The Bank has successfully developed and expanded its retail credit banking service offerings by launching new products such as mobile financing, travel loan and other tailored made products targeting SMES.
  
  
• The Bank has made extensive investments and developments in its IT infrastructure and information technology systems in relation to AML/CFT & compliance and as per CBI recent requirements.
  
  
• The Bank successfully completed the interface of the “World Check” filtering software with its core banking solution.
  
  
• The Bank has implemented a modern risk assessment mechanism for customer risk profiling and has been included in the bank’s due diligence procedures when opening bank accounts to customers.
  
  
• The Bank has insured all of its fixed assets as cash in vault and cash in transit through obtaining the Bankers Basket Bond from the best international reinsurance companies.
  
  
• The Bank participated actively in the SMEs Financing Initiatives stipulated by the Central Bank of Iraq through the financing of projects exceeding 3 billion Iraqi dinars during 2016 and in various provinces in Iraq.
  
  
• The Bank has entered into a strategic partnership with Harvard Training and Rehabilitation Organization to continue investing in human resources through continuous training courses in line with the skills required for each employee and according to the requirements of the Central Bank of Iraq.
  
  

By Cayetano Gea-Carrasco

Survey Findings: Implications for Financial Institutions

• Provision levels are expected to substantially increase under IFRS 9 versus IAS.
  
  
• Further equity issuances may be needed, with the potential for greater pro-cyclicality on lending and provisioning owing to IFRS 9. Capital levels and deal pricing will be affected by the expected provisions, but must be evaluated under different economic cycles and scenarios.
  
  
• Banks will have to estimate and book an upfront, forward-looking expected loss over the life of the financial facility and monitor for ongoing credit-quality deterioration.
  
  
• Rating and scoring systems may have to be updated, especially for those banks without Internal Ratings-Based (IRB) models.
  
  

• Banks will need to reclassify assets and reconcile them with IAS. They will also need to map products that can be categorized before the calculation (contractual cash flow test) or create a workflow to capture the purpose (business model test). An additional effort could be required to identify those products that can be considered out of scope (e.g., short-term cash facilities and/or covenant-like facilities).
  
  
• Institutions will have to align, compare, and reconcile metrics consistently (e.g., Basel vs. IFRS 9).
  
  

• Financial institutions will have to coordinate finance, credit, and risk resources for which current accounting systems are not equipped.
  
  

• The IFRS 9 provision model will make banks evaluate, at origination, how economic changes will affect their business models, capital plans, and provisioning levels.
  
  
• A methodology to calculate a forward-looking measurement will have to be developed and/or updated (e.g., transformation from TTC to PiT), while the cash flow valuation analysis must be scenario-driven.
  
  
• IFRS 9 will affect the existing documentation and hedge accounting frameworks.
  
  

• Systems will need to change significantly to calculate and record changes requested by IFRS 9 in a cost-effective, scalable way.
  
  
• Data requirements will increase to meet IFRS 9-related calculations and ongoing monitoring.
  
  
• Retrieval of old portfolio data will also be needed, especially for the transactions originated before the A-IRB models have been introduced.
  
  
• IFRS 9 impairment calculation requires higher volumes of data than IAS, which may substantially increase the performance and computational requirements of a credit-loss impairment calculation engine.
  
  
• Financial reporting and reconciliation will be needed to align with other regulatory requirements.
  
  

• IFRS 9 makes the provisioning exercise a cross-functional activity, with coordination needed across the risk, finance, accounting, and business functions.
  
  

IFRS 9 is a Game Changer

• IAS 39 – A provision is made only when there is a realized impairment. This results in “too little, too late” provisions and does not reflect the underlying economics of the transaction.
  
  
• IFRS 9 – Aligns the measurement of financial assets with the bank’s business model, contractual cash flow characteristics of instruments, and future economic scenarios. Banks may have to take a “forward-looking provision” for the portion of the loan that is likely to default, as soon as it is originated.
  
  

Who will be subject to IFRS 9?

• Companies listed on EU stock markets and EU banks must use IFRS reporting standards in preparing their consolidated financial statements.
  
  
• Europe: More than 230 banks (banks of significant importance)
  
  
• Asia, Americas (excluding the US), Oceania, and Africa will be implementing IFRS either through a local-endorsement process or convergence of the respective country-specific standard.
  
  
• Asia and the Middle East: More than 370 banks (banks of significant importance)
  
  

Industry Snapshot: Current State

Survey Results

Section 1 - Participants

• We gathered our survey results from a significant cross section of institutions of all sizes, proof that IFRS 9 implementation is on the agenda, regardless of the size of the bank.
  
  
• More than 60% of the institutions have operations in the EMEA and APAC regions where IFRS 9 will be mandatory. Institutions in the US will not be subject to IFRS 9 (GAAP is mandatory for those banks).
  
  
• More than 72% of the respondents are from the risk and finance divisions at banks who will also be the major users of IFRS 9 (from an impairment-calculation and financial reporting perspective, respectively).
  
  
• Finance is the main stakeholder given the financial reporting implications of IFRS 9. However, the risk division closely follows finance given its role in the credit-impairment calculation.
  
  

Section 2 – Preparing for 2018

• More than 82% of banks surveyed have a formal roadmap in place and plan to carry out a parallel run ahead of the implementation deadline.
  
  
• More than 85% of banks surveyed plan to have an operational IFRS 9 solution by 2017 (one year before the mandatory date to be IFRS 9 compliant).
  
  
• More than 40% of the respondents are planning to integrate IFRS 9 requirements in the Basel infrastructure.
  
  
• More than 43% of the respondents have allocated a budget of more than $2 million to meet the IFRS 9 requirements and improve their infrastructure and analytics.
  
  

Section 3 – Data and Calculation

• Gathering granular data and developing PD and LGD IFRS 9-compliant models are the major challenges to designing and implementing an IFRS 9 solution.
  
  
• More than 40% of the respondents plan to add the credit impairment and expected loss calculation engine to their Basel risk systems.
  
  
• More than 82% of the respondents plan to leverage their ALM systems to compute amortizing balances.
  
  
• More than 63% of the respondents plan to leverage their Basel IRB models for the credit-loss impairment calculation.
  
  
• More than 50% of the respondents plan to run facility-level calculations for the retail portfolio; more than 85% of the respondents are planning to run this level of granularity for the wholesale portfolio.
  
  

Section 4 – Planning and Business Benefits

• Improved timely provisioning planning and better origination practices and capital planning are the major IFRS 9 benefits for the business.
  
  
• More than 68% of the respondents plan to run monthly calculations aligned with the frequency for Basel-related calculations (e.g., RWAs).
  
  
• More than 90% of the respondents are planning to integrate IFRS 9 scenario analysis into capital planning, stress testing, and origination activities.