The implementation of International Financial Reporting Standards 9 will become compulsory for the consolidated financial statements of all State-owned enterprises, listed companies and large-scale unlisted public companies after 2025 (Photo: VNA)Hanoi (VNS/VNA) - Despite a draft roadmap to apply InternationalFinancial Reporting Standards 9 (IFRS 9) compulsorily in Vietnam from 2025,domestic banks should start preparations now as the complex norms have proved amajor challenge for global financial institutions, experts have said.
Under the draft IFRS roadmap released recently by the Ministry of Finance, IFRSimplementation will become compulsory for the consolidated financial statementsof all State-owned enterprises, listed companies and large-scale unlistedpublic companies after 2025.
According to Tran Hong Kien, assurance partner and IFRS leader at PwC Vietnam,when it comes to IFRS 9 – Financial Instruments, financial institutions arelikely to need a lot of time and effort to assess the impacts (both financialand operational), gain the necessary capabilities to comply with therequirements of the standard, prepare proposals for endorsement of changes bynecessary stakeholders, and carry out implementation projects.
“This is something we have learned from advising on IFRS 9 implementation inother countries,” Kien noted, explaining banks were likely to see biggerimpacts from IFRS 9 on its profits, risk management processes and IT systems.
IFRS 9 brings changes to how an entity should classify and measure financialassets and includes new hedge accounting guidelines. Moreover, the newimpairment model requires banks to make provisions in anticipation of futurepotential losses, instead of only when losses are incurred. This change isexpected to have the biggest impact on financial institutions.
According to Stefanie Tang, financial services director at PwC Malaysia, IFRS 9will alter the way banks book provisions for financial assets. Banks shouldexpect volatility in provisions and for first-day adoption of IFRS 9, provisionlevels are likely to be higher. The degree of the impact will vary from bank tobank and it depends on the respective bank’s portfolio mix, borrower riskprofiles and robustness of its ECL models.
In view of the complexity of IFRS 9, most banks around the region, including inMalaysia, planned and commenced the implementation project at least a yearprior to the effective date of IFRS 9 on January 1, 2018, Tang said, adding nowthe focus had shifted from quantitative aspects to qualitative aspects,including model refinements, model governance process and model monitoring.
Therefore, Tang said, to ensure a smooth transition to IFRS 9 implementation,banks in Vietnam should plan early.
Overall, IFRS 9 will require robust data, systems, and processes and greatercollaboration within every organisation. Financial institutions are advised toexplore the uses of advanced analytics and automation to deal with thecomplexity of this standard.
According to Sheldon Goh, head of risk practice and solutions at the SASInstitute for the ASEAN, IFRS 9 is by far one of the most compleximplementations financial institutions have undertaken in the last decade. IFRS9 implementation involves changes to existing credit risk models, increasedgovernance and control over the accounting process as well as the increasedfocus on co-ordination between risk and finance functions. The value of IFRS 9,however, goes beyond the cost of implementing the framework, as it improvestransparency and increases the resiliency of financial institutions.
Nguyen Thanh Son, director of the Vietnam Banking Association’s TrainingCentre, said IFRS 9 will be essential for Vietnamese banks wanting tostrengthen investor confidence and compete internationally.
In fact, more and more banks in Vietnam have put IFRS 9 on their transformationagenda, Son said, adding for banks that have yet to do that, now is the time tostart – while they still can deal with its impacts on financial statements,systems, processes, controls and more in a measured way.-VNS/VNA
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