NAIROBI (Xinhua) --
A majority of the Kenyan 41 commercial banks are
yet to implement the International Financial Reporting Standard
(IFRS) 9, whose deadline lapsed on Jan. 1.
The new financial
standard by the International Accounting Standards Board (IASB)
replaced the International Accounting Standard (IAS) 39.
The main objective
of the IFRS 9 is to provide users of financial statements with
more useful information about a bank’s expected credit losses on
institutions are required to recognize expected credit losses at
all times and to update the amount of the losses at each
reporting date to reflect changes in the credit risk.
According to the
Central Bank of Kenya (CBK), some 73 percent of the banks have
assessed its impact of the standard but are majority are yet to
implement it while 27 have not surveyed.
Kenyan banks are
expected to cut lending to unsecured entities and review their
business models as they implement the standard.
“The standard will
reduce the banks’ credit risk appetite. Therefore, they will be
more inclined to secured lending as opposed to unsecured
facilities,” the apex bank, which carried out a survey of the
banks, said in a note on Thursday.
The banks further
noted that the implementation of IFRS 9 will have a negative
impact on their profitability.
standard is expected to tighten further the business environment
for the banks following the introduction of interest caps in
Implementing of the
IFRS 9 will further result in banks reviewing their business
models, strategic objectives and credit policies in order to
realign with the new requirements.
“Banks intend to
tighten their credit standards and as a result, they will be
skewed towards collateral based lending as opposed to unsecured
lending,” said the apex bank.
Some of challenges
cited by the banks in effecting the standard are capital
constraints due to increased provisioning, inadequate technical
skills and modeling capabilities and cost implication for the
relevant technology and personnel training.
“As a mitigation
measure, banks have indicated that they are currently exploring
injection of additional capital, enhancing staff capacity
through training as well as reviewing their policies and
procedures aimed at ensuring full compliance with IFRS 9,” said