IFRS9: CBN Relaxes Implementation Of Rules For Bad Loans.

THE Central Bank of Nigeria (CBN) has relaxed the time limit for commercial banks to absorb impairments from implementation of IFRS9 rules on bad loans. The apex bank disclosed this in an emailed response to questions, according to Bloomberg.
According to the responses, the banks now have four years to absorb impairments arising from the implementation of IFRS 9 accounting standards last year, thereby easing fears that an immediate transition would have severe repercussions for banks’ capital adequacy ratios.
The Central Bank of Nigeria head office in Abuja. CBN stated: “The total provision amount is to be absorbed over the next four years in four equal parts to cushion the effect”. However, Some banks said that the migration would deduct as much as 400 basis points from their capital bases.
Commenting on the development, an analyst at Lagos-based First Bank of Nigeria Quest, Tunde Abidoye, said: “The decision is a good development for the banks as it gives them more time to either raise capital or build up more capital from retained earnings over the four-year period.
Most small and medium-sized banks have capital adequacy ratios close to the regulatory minimum.” Lenders with international licenses are required to have a minimum capital adequacy ratio of 15 percent and those with local licenses 10 percent.
The industry average rose to 12.1 percent in June from 10.2 percent at the end of 2017. While the regulator wants to protect the industry from unforeseen shocks locally and internationally following 2016 recession, many smaller lenders are battling to raise capital.
The apex bank plans to introduce strict new capital rules in the second quarter of 2019 (Q2,19) that will focus on what sort of funding qualifies as capital. The rules, which will align the banking industry with the international accord known as Basel III, also require lenders to create buffers that should help them in the case of a crisis.

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