Banks should explore the uses of advanced data analytics and automation to deal with the complexity of the IFRS 9 standard. — VNA/VNS Photo
HÀ NỘI — Despite a draft roadmap to apply International Financial Reporting Standards 9 (IFRS 9) compulsorily in Việt Nam from 2025, domestic banks should start preparations now as the complex norms have proved a major challenge for global financial institutions, experts have said.
Under the draft IFRS roadmap released recently by the Ministry of Finance, IFRS implementation will become compulsory for the consolidated financial statements of all State-owned enterprises, listed companies and large-scale unlisted public companies after 2025.
According to Trần Hồng Kiên, assurance partner and IFRS leader at PwC Vietnam, when it comes to IFRS 9 – Financial Instruments, financial institutions are likely to need a lot of time and effort to assess the impacts (both financial and operational), gain the necessary capabilities to comply with the requirements of the standard, prepare proposals for endorsement of changes by necessary stakeholders, and carry out implementation projects.
“This is something we have learned from advising on IFRS 9 implementation in other countries,” Kiên noted, explaining banks were likely to see bigger impacts from IFRS 9 on its profits, risk management processes and IT systems.
IFRS 9 brings changes to how an entity should classify and measure financial assets and includes new hedge accounting guidelines. Moreover, the new impairment model requires banks to make provisions in anticipation of future potential losses, instead of only when losses are incurred. This change is expected to have the biggest impact on financial institutions.
According to Stefanie Tang, financial services director at PwC Malaysia, IFRS 9 will alter the way banks book provisions for financial assets. Banks should expect volatility in provisions and for first-day adoption of IFRS 9, provision levels are likely to be higher. The degree of the impact will vary from bank to bank and it depends on the respective bank’s portfolio mix, borrower risk profiles and robustness of its ECL models.
In view of the complexity of IFRS 9, most banks around the region, including in Malaysia, planned and commenced the implementation project at least a year prior to the effective date of IFRS 9 on January 1, 2018, Tang said, adding now the 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 Việt Nam should plan early.
Overall, IFRS 9 will require robust data, systems, and processes and greater collaboration within every organisation. Financial institutions are advised to explore the uses of advanced analytics and automation to deal with the complexity of this standard.
According to Sheldon Goh, head of risk practice and solutions at the SAS Institute for the ASEAN, IFRS 9 is by far one of the most complex implementations financial institutions have undertaken in the last decade. IFRS 9 implementation involves changes to existing credit risk models, increased governance and control over the accounting process as well as the increased focus on co-ordination between risk and finance functions. The value of IFRS 9, however, goes beyond the cost of implementing the framework, as it improves transparency and increases the resiliency of financial institutions.
Nguyễn Thanh Sơn, director of the Vietnam Banking Association’s Training Centre, said IFRS 9 will be essential for Vietnamese banks wanting to strengthen investor confidence and compete internationally.
In fact, more and more banks in Việt Nam have put IFRS 9 on their transformation agenda, Sơn said, adding for banks that have yet to do that, now is the time to start – while they still can deal with its impacts on financial statements, systems, processes, controls and more in a measured way. — VNS