KARACHI: The central bank’s recent revisions to International Financial Reporting Standard (IFRS) 9 application instructions and guidelines for Islamic banking institutions (IBIs) addressing profit and loss distribution and pool management will have little impact on banks, a brokerage report said.

The State Bank of Pakistan (SBP) said that the provisions created against non-performing assets as per its relevant regulations will be charged to the respective pool.

Moreover, the phrase ‘(excluding fixed assets)’ stands deleted. “With these changes, the cost of borrowings for Islamic banks will reduce by around 30bps [basis points],” said Topline Securities in a report.

The revised standards for IFRS 9 stipulate that modification accounting should be implemented retrospectively; however, it may apply to loans modified on or after January 1, 2020. “FIs [financial institutions] are permitted to maintain general reserves/provisions over and above the ECL, worked out for Stage 1 and Stage 2, up to December 31, 2026,” the SBP said.

“[IBIs] are allowed to follow Islamic Financial Accounting Standards (IFAS) 1 & 2 where applicable and continue the existing accounting methodology on other Islamic products until issuance of further instruction in this regard. However, IBIs are advised to disclose the impact, in notes to financial statements, had IFRS 9 been adopted in its entirety,” it added.

According to the SBP, charitable contributions on Islamic products should not be acknowledged as income and should instead be handled per current procedures as outlined in SBP manuals. “We believe these changes are neutral for banks as the impact of IFRS-9 on banks will be gradual rather than more volatile,” the report said.