The adoption of IFRS 9 appears to have strengthened the provision coverage at Qatar’s commercial banks, according to experts.
“Its adoption since this year has already started showing positive results,” a top official of a leading accounting firm told Gulf Times.
IFRS 9 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board. In 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduced new requirements for classifying and measuring financial assets that had to be applied starting January1, 2013, with early adoption permitted.
Under the new IFRS 9 standard, banks and financial entities will be mandated to set aside a certain proportion of profit against losses for unseen reasons.
In this regard, the official highlighted that the banking industry’s provision coverage has risen, indicating the extent to which lenders have made provisions towards non-performing loans (NPLs).
The non-performing loans provisions towards NPLs stood at 83.2% in 2017 compared to 79.9% in 2016, 79.8% (2015) and 78.5% (2014); while ratio of NPLs to total loans was at 1.6% in 2017, 1.3% (2016), 1.6% (2015) and 1.7% (2014), according to Qatar Central Bank (QCB) data.
A recent report from the QCB had said Qatar’s banking sector enjoyed the lowest NPL ratio among its Gulf Co-operation Council peers.
Along with low NPL ratios, the sector’s coverage ratio is high, indicating risk from credit default can be mitigated without having any impact on its solvency, the QCB had said.
“A prudent risk metric system and a cautious approach have to a large extent helped contain asset erosion,” the bank official said.
The improvement has to be seen within the context of an overall ‘pressured’ situation in the banking landscape amidst the economic and trade blockade, according to him.
In its latest Article IV consultation with Qatar, the International Monetary Fund (IMF) had said solid profitability, robust capital base, lower bad loans and adequate provisioning would help Qatar’s banking sector withstand severe macroeconomic shocks.
“Given the strong starting position of Qatar’s financial system, with low NPLs and adequate provisioning, and solid profitability, banks can comfortably withstand higher NPLs and lower profits brought about by macroeconomic shocks,” it had said.
Though banks have substantial loss absorption capacity in terms of capital and loan loss provisioning, a sharper decline in property prices presents a risk to the banking system given its sizeable exposure to the real estate sector,” the IMF said, suggesting enhanced real estate statistics would facilitate monitoring of developments in the sector.
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