Hong Kong banks may lose $14.68m in net assets following HKFRS 9

Replacing the incurred credit loss model is likely to shed off around 1% of net assets.

The adoption of the Hong Kong Financial Reporting Standards 9 is expected to cut around 0.92% of total net banking assets in Hong Kong, according to accounting firm KPMG. 

This translates to around $14.68m reduction as the new accounting standard replaces the incurred credit loss model with the expected credit loss system effective January 1.

“In general we expect to see banks record a reduction in net assets when adopting HKFRS 9. The magnitude of the decrease, however, is subject to the nature and contractual terms of the financial instruments held by different banks,” KPMG said in a report.

Of the surveyed banks, CITIC is expected to be the hardest hit with a net asset reduction at 2.59% or $1,127m whilst iCBC (Asia) is poised to be emerge with the least wounds with net asset reduction of 0.18%. However, most banks report that the impact of new accounting standards on capital ratios are likely to be insignificant, KPMG added.

Also read: Which APAC banks need to brace for IFRS 9 impact?

Although most lenders are on track with integrating into risk management and provisioning processes as well as establishing a process for regular production, Hong Kong banks have yet to understand the business impact of the HKFRS 9 and determine appropriate disclosures, KPMG noted.

Also read: Can Hong Kong banks meet IFRS 9 requirements on time?

Banks are also delayed in establishing robust governance structures and controls and providing sufficient explanations to the market, analysts and shareholders on issues that impact them materially like loan pricing changes.

“What has been overlooked throughout the implementation is a deep understanding of the commercial and strategic impacts of the new accounting standard,” said Michael Monteforte, partner at financial risk management for KPMG China.