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IFRS 9 implementation key for Vietnamese banks

Released at: 14:49, 25/09/2018

IFRS 9 implementation key for Vietnamese banks

Photo: PwC

PwC Vietnam and SAS Malaysia hold workshops in Hanoi and HCMC on September 20 and 21 on International Financial Reporting Standards 9.

by Doanh Doanh

PwC Vietnam, in cooperation with SAS Malaysia, organized “IFRS 9 implementation - Embracing challenge and opportunity” workshops in both Hanoi and Ho Chi Minh City on September 20 and 21 to support Vietnamese banks in how to best prepare for International Financial Reporting Standards (IFRS) 9.

The workshop attracted more than 100 representatives from the Risk Management and Finance teams of commercial banks currently operating in Vietnam. PwC and SAS experts shared their knowledge of IFRS 9’s complexities and offered practical experiences to cope with the challenges in implementation.

While not yet mandatory in Vietnam, many banks are now looking to implement the changes associated with IFRS 9 in order to align with global best practices, strengthen their business through improved reporting and better risk management, and attract foreign investors who may expect IFRS-compliant reporting.

“A scheme is planned to be submitted to the government for approval wherein Vietnamese companies are divided into three groups: an IFRS-applying group, a Vietnamese Accounting Standards-applying group (VAS will be modified to align with IFRS changes, in accordance with Vietnamese characteristics), and micro, small and medium enterprises (MSMEs) group,” said Mr. Luu DucTuyen, Deputy Head of the Accounting and Auditing Regulations Department at the Ministry of Finance (MoF). “The transition process will take place after the approval of the scheme, expected in 2019-2020, and implementation will begin within a reasonable timeframe to ensure the practicality of these enterprises, expected in 2025-2030.”

At the workshop, Ms. Dinh Hong Hanh, Financial Services Consulting Partner at PwC South East Asia Consulting, said the most significant changes for Vietnamese banks will be the impairment and provisions for credit losses, which have been updated to use a more forward-looking calculation.

As IFRS 9 introduces the expected credit loss (ECL) model for all financial instruments subject to credit risk, banks will have to hold provisions for expected future losses on all credit exposures, as opposed to the IAS 39 standard of holding provisions only for assets that have been classified as impaired.

Addressing the impacts of the new credit risk model, PwC experts foresee impairment losses to be higher moving forward with the shift from an incurred loss to an expected loss model. A recent survey of Malaysian banks based on their first quarter announcements revealed that provisions increased 25 per cent to 50 per cent on the first day of IFRS 9’s adoption, which would have a direct impact on retained earnings.

“IFRS 9’s implementation will be key for Vietnamese banks wanting to provide comparable and transparent financial application and disclosures at global standards,” said Ching Chuan Ong, Financial Services Leader and Assurance Partner at PwC Malaysia. “Some of the implementation challenges will involve assessments of the business model and performance of the Solely for Payment of Principal and Interest (SPPI) test for asset classification, and also making impairment allowances based on the new expected credit loss concept. This may lead to a potential overhaul of current investment and credit management strategies.”

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