SBP introduces amendments to ease IFRS 9 compliance for financial institutions

KARACHI: The State Bank of Pakistan (SBP) has introduced significant amendments to facilitate the implementation of International Financial Reporting Standard 9 (IFRS 9), aimed at easing compliance for financial institutions (FIs) nationwide.

These changes respond to the concerns raised by banks and FIs about the practical aspects of IFRS 9 implementation while ensuring adherence to global financial reporting standards. The updated guidelines now require financial institutions to apply modification accounting retrospectively, but this applies only to loans modified on or after January 1, 2020.

Furthermore, the SBP has authorised financial institutions to maintain general reserves or provisions exceeding the Expected Credit Loss (ECL) estimates for Stage 1 and Stage 2 loans. This allowance is valid until December 31, 2026, offering banks added flexibility in managing their financial stability during the transition to IFRS 9.

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Additionally, Islamic Banking Institutions (IBIs) are permitted to adhere to Islamic Financial Accounting Standards (IFAS) 1 and 2 where applicable, and they can continue using their existing accounting methods for other Islamic products until further instructions are issued.

However, IBIs are required to disclose in the notes to their financial statements the impact if IFRS 9 had been fully adopted.

The SBP also reiterated the treatment of charity funds in Islamic banking operations. According to the revised instructions, charity funds, as defined by current SBP guidelines, should not be recognized as income. The treatment of charity funds must align with existing practices, as outlined in SBP instructions, and should not be recorded as income.

All other directives regarding the IFRS 9 Application Instructions will remain unchanged, the SBP confirmed.