Kenyan Banks may need three sets of accounts as new accounting rule sets in

 

Barclays Bank Chief Finance Officer Yufuf Omari(r) explains a point as Kenya Bankers Association Chief Executive Officer Habil Olaka looks on during banks workshop on Implementation of new accounting standard

NAIROBI, KENYA: Commercial banks may have to prepare three different sets of financial results to please three regulators as a new reporting standard comes into force in three months’ time.

According to sector players, banks will be at a crossroads to please the Central Bank of Kenya (CBK), the Kenya Revenue Authority (KRA), and the International Accounting Standards Board.

The new rule, International Financial Reporting Standard (IFRS) 9, is set to phase out International Accounting Standard (IAS) 39 come January, fuelling the proposed changes where banks may have to prepare a set of accounts for each of three bodies to meet their respective needs.

The Barclays Bank of Kenya’s chief finance officer, Yusuf Omari, said banks may have challenges during the initial stages of implementing IFRS 9 before eventually adjusting their books.

“We may be forced to keep three sets of accounts as far as compliance is concerned and this will increase the cost of banking,” explained Mr Omari.

Speaking during a workshop yesterday, Omari said the onset of IFRS 9 will mean that the standard is now stricter than the CBK’s Prudential Guidelines on making more provisions for non-performing loans. Initially, under IAS 39, CBK’s Prudential Guidelines were superior, especially with Governor Patrick Njoroge prevailing on banks to make sufficient provisions for bad loans.

According to the head of technical services at the Institute of Certified Public Accountants of Kenya, Cliff Nyandoro, external auditors will have to work closely with banks to review the books to be issued to the three bodies. “Where we have departure from the new standard, we will need a reconciliation process,” said Nyandoro.

IFRS 9 tightens the rules of the game further in what will now force banks to consider past events, current conditions, and future projections to make loan provisions. This, according to a KPMG Kenya partner, Joseph Kariuki, could see the level of impairment rise by between 50 and 100 per cent.

According to Kenya Bankers Association CEO Habil Olaka, the new standard also presents a big difference with the way KRA would want banks to treat non-performing loans.

“The taxman normally wants you to provide concrete evidence that a customer will default but IFRS 9 is less punitive,” explained Olaka.

In the past, there has been ping-pong between KRA and banks, with the former accusing lenders of making high provisions to avoid paying higher taxes.