3 implications on banks' financials when MFRS 9 takes effect in 2018

One is that there will be a one-off provision charge to retained earnings.

The Malaysian Accounting Standards Board adopted IFRS 9 and issued its version of it i.e. MFRS 9 in November 2014, and this standard kicks into effect on 1 Jan 2018. MFRS 9 introduces amendments to the following areas: Impairment; Classification and measurement of financial assets; Accounting for changes in own credit risk in financial liabilities; and Hedge accounting.

According to Maybank Kim Eng, there are several implications to banks’ financials once MFRS 9 kicks into effect on 1 Jan 2018:

 There will be a one-off provision charge to retained earnings on 1 Jan 2018 for banks with a December financial year end (1 Apr 2018 for e.g. banks with a March financial year end).
 From our understanding, Malaysian banks expect to be able to offset this one-off provision charge against the Regulatory Reserves that they have presently to minimize the impact.
 Future provision charges impacting the P&L will fluctuate according to the type, duration and quality of future loans taken on.

At this stage, banks have not been able to share their preliminary impact assessment studies, and this is understandable, given that there is much subjectivity involved and discussions with the Central Bank are still ongoing.

In a recent interview with PricwaterhouseCoopers (PwC) Malaysia, however, representatives of the accounting firm had commented that based on early simulation exercises, the Day 1 impact of MFRS 9 adoption is that provisioning could potentially jump by more than 50% for some banks in Malaysia. Meanwhile the 59 global banks recently surveyed by Deloitte believed their provision levels may increase by up to 50% with the adoption of the standard.