Move to ease pressure officials face with the application of IFRS

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Two finance companies meet with CBK officials

KUWAIT CITY, April 24: At least two finance companies have recently met with officials of the Central Bank of Kuwait in an effort to ease the pressures they face with the application of IFRS 9 (International Financial Reporting Standard) regarding financial instruments and provisions, reliable sources told the Al-Rai daily.

The sources indicated that the two companies, both major domestic finance sector entities, met with the Central Bank separately, where they reviewed with the supervisory officials the possibility of easing the accounting instructions imposed on them, by only following the instructions specified in Standard 9, with one mechanism in the method of calculating allocations. IFRS 9, which superseded IAS 39, provided a general basis for the method of building prudential provisions.

However, the Central Bank obliged the entities under its control in a single accounting manner to provide additional determinants of classification, measurement and hedge accounting, its future, and its shareholders, considering that the required allocations of their rights will be built.

Scenarios
The sources pointed out that several scenarios were reviewed with the Central Bank officials regarding the risks of applying the mechanism of building the allocated allocations to the sector.

The companies explained that the cost of implementing IFRS 9 with one mechanism in the calculation of provisions will have to adjust their opening balance in a manner that increases their allocations by 70% for the financial year ended 2018, compared to its actual need for provisions if the Standard 9 is applied without the Central Mechanism, indicating that this accounting situation raises the cost of financing risks to the sector units too much.

The sources pointed out that the mechanism of calculating the allocations specified by the Central Bank will reduce the time required to build full allocations, which requires the construction of allocations by 50 percent if the period of failure of the client 60 days, and 100 percent if the period to 90 days, If the customer subsequently settles in the payment, the financier should not liquidate the provisions made against its financing until one year after regular repayment.

The Central Bank expressed wide understanding of what was raised during its discussions with the finance companies. He stressed that he will study each case and that he is ready to ease the accounting restrictions of any company if he concludes that this is necessary, in a manner that does not violate the requirements of the international standard.

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