NAIROBI, June 7 (Xinhua) -- A majority of the Kenyan 41 commercial banks are yet to implement the International Financial Reporting Standard (IFRS) 9, whose deadline lapsed on Jan. 1.
The new financial standard by the International Accounting Standards Board (IASB) replaced the International Accounting Standard (IAS) 39.
The main objective of the IFRS 9 is to provide users of financial statements with more useful information about a bank's expected credit losses on financial instruments.
Therefore, the institutions are required to recognize expected credit losses at all times and to update the amount of the losses at each reporting date to reflect changes in the credit risk.
According to the Central Bank of Kenya (CBK), some 73 percent of the banks have assessed its impact of the standard but are majority are yet to implement it while 27 have not surveyed.
Kenyan banks are expected to cut lending to unsecured entities and review their business models as they implement the standard.
"The standard will reduce the banks' credit risk appetite. Therefore, they will be more inclined to secured lending as opposed to unsecured facilities," the apex bank, which carried out a survey of the banks, said in a note on Thursday.
The banks further noted that the implementation of IFRS 9 will have a negative impact on their profitability.
The financial standard is expected to tighten further the business environment for the banks following the introduction of interest caps in September 2016.
Implementing of the IFRS 9 will further result in banks reviewing their business models, strategic objectives and credit policies in order to realign with the new requirements.
"Banks intend to tighten their credit standards and as a result, they will be skewed towards collateral based lending as opposed to unsecured lending," said the apex bank.
Some of challenges cited by the banks in effecting the standard are capital constraints due to increased provisioning, inadequate technical skills and modeling capabilities and cost implication for the relevant technology and personnel training.
"As a mitigation measure, banks have indicated that they are currently exploring injection of additional capital, enhancing staff capacity through training as well as reviewing their policies and procedures aimed at ensuring full compliance with IFRS 9," said the CBK.
