The State Bank of Pakistan (SBP) has granted an extension for adopting the International Financial Reporting Standard 9 (IFRS 9) by commercial banks with assets of Rs500 billion or above until January 1, 2024.
The accounting standard is anticipated to impact banks by increasing their credit costs and affecting their earnings.
IFRS 9 is a reporting standard introduced to improve how financial institutions classify and measure financial assets, liabilities, and some contracts to buy or sell non-financial items.
The standard requires banks to recognize credit losses earlier and more accurately, which is expected to increase provisioning for non-performing loans (NPLs) by two percentage points. This implies that banks must estimate higher losses against lending on their balance sheets before materializing. If the actual bad loans are lower than estimated, banks can show recovery against NPLs.
During the transition period, banks, development finance institutions (DFIs), and microfinance banks (MFBs) will continue parallel reporting, and early standard adoption is encouraged. The deadline for preparing annual and interim financial statements on the revised formats by banks and DFIs has also been extended to the first quarter of 2024.
For smaller banks and MFBs, the implementation date for IFRS 9 remains unchanged on January 1, 2024. It is important to note that adopting IFRS 9 comes as banks face an increase in NPLs due to the ongoing economic crisis and rising inflation in the country. Consequently, the capacity of corporate entities and households to repay loans has weakened, making NPLs a significant concern for banks in the current fiscal year.
 for large commercial banks until January 1, 2024, anticipating an impact on credit costs and earnings.){kind=link}