The State Bank of Pakistan (SBP) has announced amendments and extended timelines for the application of International Financial Reporting Standard 9 (IFRS 9) due to difficulties faced by financial institutions in its implementation.
Originally, SBP’s directives from April 2023 required banks, Development Finance Institutions (DFIs), and Microfinance Banks (MFBs) to implement IFRS 9 by January 1, 2024. However, recognizing the challenges faced, the SBP has decided to extend the timelines and make certain amendments.
Key Amendments and Extensions:
- Exemption Applicability Period: The Securities and Exchange Commission of Pakistan (SECP) has extended the exemption period for IFRS 9 applicability until January 1, 2026.
- Unquoted Equity Securities: Financial Institutions (FIs) can continue measuring unquoted equity securities at the lower of cost or break-up value until December 31, 2024. From January 1, 2025, these securities must be measured at fair value as per IFRS 9.
- Exposure at Default (EAD) Models: The deadline for developing requisite EAD models for revolving products beyond the contractual date is extended to December 31, 2024.
- Effective Interest Rate (EIR) Method: FIs can use existing practices for recognizing interest income/expense on financial assets/liabilities until September 30, 2024. From October 1, 2024, recognition must follow the EIR method as per IFRS 9.
- Subsidized Staff Loans: Loans extended to employees under HR policies must be measured at fair value according to IFRS 9 from October 1, 2024.
- Modification Accounting: From October 1, 2024, FIs must use modification accounting for financial assets and liabilities as per IFRS 9.
The SBP has instructed FIs to prepare time-bound plans, approved by their Board of Directors, to ensure compliance with these extended requirements. All other IFRS 9 application instructions remain unchanged.
