Banks survive IFRS onslaught

ZIMBABWEAN banks have survived an onslaught brought by International Financial Reporting Standards (IFRS) 9, the new standard of accounting for classification and measurement of financial instruments which came into effect on January, 01, 2018, after the majority of them recorded healthy profits in the first six months of this year.
IFRS 9, which replaced IAS 39, requires the recording of expected losses on financial assets, such as loans, regardless of whether there has been any actual loss.
Previously, these ‘impairment losses’ would only be recorded after they had been incurred.
There were fears that the new accounting standard for the recognition of financial instruments will put a huge dent on local banks’ revenue performance.
However, financial statements of most banks for the half-year to June show that the implementation of the new accounting standard did not have a significant impact on banks’ impairment losses, which has in some cases resulted in decreases in stated profits and, or capital.
NMB Zimbabwe (NMBZ), whose profit after tax was up by 150 percent at $9 million in the half year period after a 62 percent increase in its fees and commissions, said impairment losses on loans and advances amounted to $1,4 million from a prior year amount of $878 304.
“In terms of the increase in impairment allowances we also have to bear in mind that we are applying different methodologies here, under IAS 39 it was backward looking but with IFRS 9 we are forward looking,” Benson Ndachena, NMBZ Holdings’ chief financial officer said at the bank’s results presentation recently.
“…under IFRS 9 we are even impairing the loan grades which we would not impair before, at the moment you create a loan, from day one, you now have an impairment charge, and this was not the case previously.
“…we now have instruments such as treasury bills which are also being impaired under the new standard,” he said.
IFRS 9 was adopted because it aligns the measurement of financial assets to the business model of banks, the standard has however inevitably, significantly impacted banks’ financial statements, with impairment and profitability calculations affected most.
Barclays bank’s impairment charge increased to $1,7 million from $1 million, while Stanbic’s expected credit loss allowances increased by 284 percent over the period under review.
Nedbank Zimbabwe’s loss allowances grew by 65 percent from $5,1 million to $8,5 million over the half year and CABS reported an impairment charge increase of 138 percent from $2,89 to $6,89 million, over the same period.
The People’s Own Savings Bank’s says its capital was reduced by $5,18 million in January as a result of its adoption of the new standard.
FBC Bank was also affected as its loan book decreased by seven percent from, $105 million to $98 million over the half year to June, 2018.
“The reduction reflects the combined effect of the adoption of a new IFRS 9 and the slow pace of loan asset creation,” the bank said.
Even though the impact of the new standard on banks’ statements has been significant, it has only resulted in minor downgrades of profits and capital of the financial institutions, which are currently enjoying a good run, buoyed by windfalls from commission fees in the electronic transactions space.
This comes as the country’s cash shortages have come as a blessing in disguise to the banking sector which has been racking in non-interest revenue. Under normal circumstances, non-funded income serves as a less significant compliment to banks’ core business, which is lending. But at the moment, non-interest income has become the major bread winner for the sector.
The central bank says the banking sector’s net profit for the year to December, 2017 amounted to $241,94 million, representing a 33,91 percent increase from $181,06 million in 2016, with 18 out of 19 institutions recording profits. The trend continued over the half year to June, the results published by banks in the current reporting season so far, show commission fees to have pushed profitability within the sector, beyond 2017 levels.
CBZ Bank’s profit after tax for the half year was up by 220 percent, to $32 million from $10 million achieved during the comparable period in 2017. This was on the back of a 33 percent increase in non-interest income, from $30 million in 2017 to $40 million.
CABS reported a $21 million surplus for the half year, representing a 27 percent increase from $16,5 million achieved in 2017, after a 37 percent increase in its fees and commissions.
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