GCC banks to manage impact of IFRS adoption, says S&P

S&P Global Ratings said in a recent report that GCC banks under its coverage will show resilience to the adoption of International Financial Reporting Standard (IFRS) 9.

Under the new standard "Financial Instruments", which will come into effect on January 1, 2018, banks are required to set aside provisions in advance, based on their loss expectations.

"Our view that the impact of IFRS 9 will be manageable is due in part to the relatively conservative approach that GCC banks already take to calculating and setting aside loan-loss provisions," S&P Global Ratings credit analyst, Mohamed Damak, said.

Following the adoption of IFRS 9, rated GCC banks will have to set aside additional provisions of up to 17 percent of their net operating income on average.

Excluding banks with no shortage in provision, the additional provisions would represent 27 percent of net operating income.

Banks in Kuwait would see the least impact, as they are required by the central bank to take a general provision on their performing facilities equivalent to 1 percent of cash facilities and 0.5 percent of non-cash facilities.

Meanwhile, the most affected rated banks would be in Qatar, primarily due to the specific cases of a couple of Qatari banks that have either seen a significant deterioration in their asset quality indicators, or an increase in past due but not impaired loans, over the past couple of years.

The rating agency added that its calculations were based on the quality of banks' lending portfolios. Other assets were excluded in scope of IFRS 9 when estimating lifetime expected losses due to a lack of public disclosure.