MFRS 9 came into effect on 1 January 2018. It requires banks to make provisions in anticipation of future potential losses, not when they are incurred (as per MFRS 139). This is where accounting gets creative under the guise of prudence.
Loans fall under any one of three stages under the expected credit loss (ECL) model. Stage 1 is where provisions are made for projected losses over 12 months. Stage 2 if credit quality deteriorates and Stage 3 where it becomes non-performing, then recognition is made over expected life of the loan. The moratorium had allowed businesses and consumers to have temporary relief. Loans under moratorium accounted to RM66.6 billion. Of this, RM23.3 billion were business loans while the balance was to individuals/general public. There will be a spike in provisions with the moratorium period over. Hence the question of relief or exemption
Why is it difficult? It is not just Bank Negara but also the Malaysian Accounting Standards Board. If banks were to be exempted, then other corporate, PLCs are also looking for similar relief.
Source:
https://www.thestar.com.my
Bank Negara has provided some flexibility in recent months with restructured or rescheduled loans not to be classified as “Stage 3 impaired loans”. Many are also watching European regulators if they give in to banks’ requests there. Bank of England is cancelling stress testing of 8 major banks and hopes to give further guidance on IFRS 9.
Meanwhile, it will be useful for banks
to re-schedule or restructure large loans that could impact their financials. A
proactive approach may be required.
References:
1. Eye
on provisions after MFRS 9, Adeline Paul Raj, The Edge Malaysia, April 10,
2019
2. Banks
ask for MFRS 9 relief on worry of provision spike, Adeline Paul Raj, The
Edge Malaysia, March 30, 2020
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