UAE Central Bank delivers financial reporting guidelines to assess COVID-19 credit losses

The Central Bank of the UAE announced guidelines to financial organizations on the use of International Financial Reporting Standard 9 (IFRS 9) to guarantee that credit losses due to COVID-19 are properly assessed.

The guidance for complying with IFRS 9, a global accounting standard utilized for financial instruments was published after deliberation with relevant stakeholders. The regulator offered “practical solutions to handle the influence of economic uncertainty on the estimate of expected credit losses while remaining compliant with IFRS 9”.

The guidance also directs to “ensure transparency and disclosure, adding to strengthened financial stability in the UAE”, the central bank pointed out.

As the central bank raised its Targeted Economic Support Scheme (Tess) package to Dh256 billion last month, administrative organizations in the UAE published direction to banks on managing problem loans during the coronavirus crisis.

The central bank and the regulators of the country’s two financial free zones – Abu Dhabi Global Market and the Dubai International Financial Centre said that “the flexibility embedded in the IFRS 9 framework” should be utilized when viewing at clients’ capacity to reimburse credits.

The regulators appended that lenders should put those incompetent to make repayments due to business interruption into two groups: those only temporarily and moderately affected, and those seriously affected.

For the first group suffering temporary liquidity problems, the regulators said banks should not reclassify loans as problem loans during the Tess period.

For the second group, companies facing a “sufficient decline in credit risk” should have their financings moved to the second stage and listed as problem loans.

However, the regulators said loans should not be demoted to the third stage where they are considered damaged while in the (Tess) support period, except in extraordinary circumstances “if clients’ business models are no longer sustainable”.

Earlier this month, the central bank said banks have taken 77 percent of the Dh50 billion worth of interest-free loans offered by the Tess liquidity facility.