KARACHI: The State Bank of Pakistan (SBP) has announced key amendments to implement International Financial Reporting Standard 9 (IFRS 9) in a move aimed at easing compliance for Financial Institutions (FIs) across the country.
These amendments are aimed at addressing concerns raised by banks and FIs regarding the practical implementation of IFRS 9 while ensuring that they remain compliant with global financial reporting standards.
As per the revised guidelines, financial institutions are now required to apply modification accounting retrospectively. However, the provisions will apply only to loans modified on or after January 1, 2020.
FIs facing problems: SBP to amend and extend timelines of IFRS 9
The SBP has also given financial institutions the permission to maintain general reserves or provisions over and above the Expected Credit Loss (ECL) estimates for Stage 1 and Stage 2 loans. These additional provisions are permitted until December 31, 2026, providing banks with greater flexibility in managing their financial stability during the transition to IFRS 9.
With the fresh amendment, Islamic Banking Institutions (IBIs) are allowed to follow Islamic Financial Accounting Standards (IFAS) 1 & 2 where applicable and continue the existing accounting methodology on other Islamic products until issuance of further instruction in this regard. However, IBIs are advised to disclose the impact, in notes to financial statements, had IFRS 9 been adopted in its entirety.
The SBP also reaffirmed the treatment of charity funds in Islamic banking operations. According to the updated instructions, charity funds, as defined by existing SBP guidelines, must not be recognized as income. Therefore, the treatment of charity should be in line with the existing practices as defined in SBP instructions and should not be recognized as income.
All other instructions regarding the IFRS 9 Application Instructions shall, however, remain unchanged, the SBP said.
Copyright Business Recorder, 2025
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