IFRS 9 Transition Hurting Banks’ Capital Bases, Says Report

• IFRS 9 Transition Hurting Banks’ Capital Bases, Says Report

The ongoing transaction to International Financial Reporting Standard (IFRS 9) by commercial banks is affecting many lenders’ capital position, a report released by Guaranty Trust Bank Plc has shown.

It said the transition to the new standard resulted in lower capital position in view of the shift from Incurred Loss to Expected Credit Loss (ECL) model.

In effect, most banks saw between 150 to 500 basis points (bps) shaved off their capital, resulting in significant decline in the regulatory Capital Adequacy Ratio (CAR) of some banks below the minimum of 15 per cent (and 16 per cent for D-SIBs) bringing to fore the need for these banks to raise fresh capital.

“In a move to cushion the effect of the ECL provisions on tier 1 capital, the CBN introduced a four-year transitional arrangement which will require banks to hold static the Adjusted Day One impact of IFRS 9 impairment figures and spread it over a four-year period. Consequently, capital position of banks will improve relative to the figures that were published for the 2018 reporting periods”.

GTBank in the report predicted that the Nigeria economic growth will be lower than the two per cent predicted by International Monetary Fund and World Bank. It said that the Nigerian Economy will grow by 1.9 per cent in 2019. Giving reasons for its lower growth projection, it said “in the wake of normalising interest rates, uncertainty in the oil market, slowing global economy and capital flight from emerging markets, Nigeria’s economic performance will be largely dependent on the interplay of these external factors especially the global oil market in a year that will be split into two halves. The first half will see politics and electioneering dominate much to the detriment of economic activities which may translate into muted capital inflow, increased pressure on the Naira, accelerated forex intervention and declining external reserves.