THE ARAB MONETARY FUND PUBLISHES A STUDY ON "THE CHALLENGES OF APPLYING THE INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS9) TO ARAB BANKS"

by **claud39** on Wed Jul 08, 2020 9:13 am

THE ARAB MONETARY FUND PUBLISHES A STUDY ON "THE CHALLENGES OF APPLYING THE INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS9) TO ARAB BANKS"

2020-07-07

In the context of the Arab Monetary Fund assuming the technical secretariat of the committees and work teams emanating from the Board of Governors of Central Banks and Arab Monetary Institutions, the Fund prepa

red, in cooperation with the Arab Committee for Banking Supervision, a study on "The Challenges of Implementing the International Financial Reporting Standard ( IFRS9 ) on Arab Banks ". The study touched on the most important requirements of the international standard, especially with regard to classification of financial assets and the new framework for impairment in the value of assets, in addition to addressing accounting allocations when applying the capital adequacy criterion for the Basel Committee.

The importance of the topic comes in response to the proposals of the leaders of the Group of Twenty countries and the Basel Committee for Banking Supervision, where the International Accounting Standards Board ( IASB ) and the Financial Accounting Standards Board in the United States of America ( FASB ) adopted new standards in the formation of allocations to financial assets produced from and not produced. The new standards are based on a fundamental rule that is the use of models based on the expected credit loss instead of the old models based on the achieved credit loss.

The study was based on the results of a questionnaire distributed to the central banks and Arab monetary institutions, which dealt with the challenges of implementation for control purposes and not for accounting purposes. Therefore, the study does not address in detail the requirements of the international standard, insofar as it shows the aspects that affect aspects related to the sound management of credit risk in banks and financial institutions and the expected impact of the application of this standard on capital adequacy.

The study indicated that the main goal of applying the international standard is to move to a Forward-looking model in recognition of the decline in the quality of credit, as this model does not require a specific event to record credit losses as it requires obtaining timely information about Any of the indicators that indicate the possibility of credit losses. Expected Credit Loss ( ECL ) is required to be recorded at all times and classified at each disclosure date, to reflect the level of credit risk of the financial instruments.

The study dealt with the systematic treatment of accounting allocations, as it included the proposals included in the paper issued by the Basel Committee entitled "Control treatment of accounting allocations". In this context, the study reviewed the experiences of Arab countries in applying the standard and determining the effect of the expected credit loss ( ECL ) on the regulatory capital.

The study showed that most Arab central banks imposed on their banks the application of the standard, starting from January 1, 2018, when instructions were issued regarding its application. Banks in most Arab countries also declare the expected credit loss ratio according to the credit portfolios to the supervisory authority.

With regard to the challenges facing Arab banks, the study highlighted the most important one, in determining the methodology to be adopted in calculating the expected credit loss ( ECL ), because of its implications for formal capital, as the available methodologies explained between the methodology based on the indicators of probability of default ( PD ) The default failure ( LGD ), and the Adjusted Historical Loss Rate methodology . The study also highlighted the identification of the types of guarantees and eligible guarantees in order to calculate the expected credit loss, as another challenge facing banks in Arab countries.

The full version of the study is available at this link

https://www.amf.org.ae/ar/study/challenges-applying-ifrs9-arab-banks

https://www.amf.org.ae/ar/content/%D8%B5%D9%86%D8%AF%D9%88%D9%82-%D8%A7%D9%84%D9%86%D9%82%D8%AF-%D8%A7%D9%84%D8%B9%D8%B1%D8%A8%D9%8A-%D9%8A%D9%8F%D8%B5%D8%AF%D8%B1-%D8%AF%D8%B1%D8%A7%D8%B3%D8%A9-%D8%B9%D9%85%D9%84-%D8%AD%D9%88%D9%84-%D8%AA%D8%AD%D8%AF%D9%8A%D8%A7%D8%AA-%D8%AA%D8%B7%D8%A8%D9%8A%D9%82-%D8%A7%D9%84%D9%85%D8%B9%D9%8A%D8%A7%D8%B1-%D8%A7%D9%84%D8%AF%D9%88%D9%84%D9%8A-%D9%84%D9%84%D8%AA%D9%82%D8%A7%D8%B1%D9%8A%D8%B1-%D8%A7%D9%84%D9%85%D8%A7%D9%84%D9%8A%D8%A9-ifrs9

by **claud39** on Wed Jul 08, 2020 9:17 am

“CHALLENGES OF IMPLEMENTING THE INTERNATIONAL FINANCIAL REPORTING STANDARD ON ARAB BANKS” STUDY OF THE ARAB MONETARY FUND

08/07/2020

THE ARAB MONETARY FUND PUBLISHES A STUDY ON "THE CHALLENGES OF APPLYING THE INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS9) TO ARAB BANKS" %D8%AA%D8%AD%D8%AF%D9%8A%D8%A7%D8%AA-%D8%AA%D8%B7%D8%A8%D9%8A%D9%82-%D8%A7%D9%84%D9%85%D8%B9%D9%8A%D8%A7%D8%B1-%D8%A7%D9%84%D8%AF%D9%88%D9%84%D9%8A-%D9%84%D9%84%D8%AA%D9%82%D8%A7%D8%B1%D9%8A%D8%B1-%D8%A7%D9%84%D9%85%D8%A7%D9%84%D9%8A%D8%A9-%D8%B9%D9%84%D9%89-%D8%A7%D9%84%D8%A8%D9%86%D9%88%D9%83-%D8%A7%D9%84%D8%B9%D8%B1%D8%A8%D9%8A%D8%A9-%D8%AF%D8%B1%D8%A7%D8%B3%D8%A9-%D9%84%D8%B5%D9%86%D8%AF%D9%88%D9%82-%D8%A7%D9%84%D9%86%D9%82%D8%AF-%D8%A7%D9%84%D8%B9%D8%B1%D8%A8%D9%8A

In the context of the Arab Monetary Fund assuming the technical secretariat of the committees and work teams emanating from the Board of Governors of Central Banks and Arab Monetary Institutions, the Fund prepared, in cooperation with the Arab Committee for Banking Supervision, a study on “The Challenges of Implementing the International Financial Reporting Standard (IFRS9) on Arab Banks”.

The study touched on the most important requirements of the international standard, especially with regard to classification of financial assets and the new framework for impairment in the value of assets, in addition to addressing accounting allocations when applying the capital adequacy criterion for the Basel Committee.

The importance of the topic comes in response to the proposals of the leaders of the Group of Twenty countries and the Basel Committee for Banking Supervision, where the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board in the United States of America (FASB) adopted new standards in the formation of allocations to financial assets produced and unproductive. The new standards are based on a fundamental rule that is to use models based on the expected credit loss instead of the old models based on the achieved credit loss.

The study was based on the results of a questionnaire distributed to the central banks and Arab monetary institutions, which dealt with the challenges of implementation for control purposes and not for accounting purposes. Therefore, the study does not address in detail the requirements of the international standard, insofar as it shows the aspects that affect aspects related to the sound management of credit risk in banks and financial institutions and the expected impact of the application of this standard on capital adequacy.

The study indicated that the main goal of applying the international standard is to move to a Forward-looking model in recognition of the decline in the quality of credit, as this model does not require a specific event to record credit losses as it requires obtaining timely information about Any of the indicators that indicate the possibility of credit losses.

Expected Credit Loss (ECL) is required to be recorded at all times and classified at each disclosure date, to reflect the level of credit risk of the financial instruments.

The study dealt with the systematic treatment of accounting allocations, as it included the proposals included in the paper issued by the Basel Committee entitled "Control treatment of accounting allocations". In this context, the study reviewed the experiences of Arab countries in applying the standard and determining the effect of the expected credit loss (ECL) on the regulatory capital.

It also showed that most Arab central banks imposed on their banks the application of the standard, starting from January 1, 2018, when instructions were issued regarding its application. Banks in most Arab countries also declare the expected credit loss ratio according to the credit portfolios to the supervisory authority.

With regard to the challenges facing Arab banks, the study highlighted the most important one, in determining the methodology to be adopted in calculating the expected credit loss (ECL), because of its implications for formal capital, as the available methodologies explained between the methodology based on the indicators of probability of default (PD) The default failure (LGD), and the Adjusted Historical Loss Rate methodology. The study also highlighted the identification of the types of guarantees and eligible guarantees in order to calculate the expected credit loss, as another challenge facing banks in the Arab countries.

https://uabonline.org/%d8%aa%d8%ad%d8%af%d9%8a%d8%a7%d8%aa-%d8%aa%d8%b7%d8%a8%d9%8a%d9%82-%d8%a7%d9%84%d9%85%d8%b9%d9%8a%d8%a7%d8%b1-%d8%a7%d9%84%d8%af%d9%88%d9%84%d9%8a-%d9%84%d9%84%d8%aa%d9%82%d8%a7%d8%b1%d9%8a%d8%b1/