International Financial Reporting Standard (IFRS) 9 and the Financial Performance of Commercial Banks in Kenya
##plugins.themes.bootstrap3.article.main##
The International Financial Reporting Standard (IFRS) 9 presents the latest accounting treatment for financial assets and liabilities, impairment procedures, hedge and fair value accounting. This new regulation largely replaces the International Accounting Standards 39. The last form of IFRS 9 was published in July 2014 with the mandatory global compliance date for IFRS 9 set on January 1, 2018, with earlier application encouraged. The main distinctive features of this standard are described in terms of hedge accounting, recognition and classification, and fair value measurement of the financial instruments. The objective of the research study was to determine the impact of the mandatory adoption of IFRS 9 on the financial performance of commercial banks in Kenya. The study adopted an event study approach or design by analyzing the quarterly financial statements of the commercial banks submitted to the Central Bank of Kenya and comparing the performance of the commercial banks before the introduction of the IFRS 9 and after its adoption. The study’s findings were that returns on assets and returns on equity were on an upward trend despite the introduction of IFRS 9. This was contrary to the expectation of poor performance since lower earnings due to loan loss provisions were expected to have a material effect on profitability.
Downloads
Download data is not yet available.
References
-
Abad, J., & Suarez, J. (2017) Assessing the cyclical implications of IFRS 9: A recursive model. ESRB Occasional Paper, (12).
Google Scholar
1
-
Badertscher, B., Burks, J., & Easton, P. (2012) A convenient scapegoat: Fair value accounting by commercial banks during the financial crisis. Accounting Review, 87.
Google Scholar
2
-
Barth, M., Beaver, W., & Landsman, W. (1995) Fair value accounting: Effects on banks' earnings volatility, regulatory capital, and value of contractual cash flows. Journal of Banking and Finance, 19.
Google Scholar
3
-
Barclays (2017) European Banks: IFRS9–Bigger than Basel IV. January.
Google Scholar
4
-
BIS (2015). Basel Committee on Banking Supervision: Consultative Document. Guidelines. Guidance on accounting for expected credit losses. Retrieved from: https://www.bis.org/bcbs/publ/d311.pdf.
Google Scholar
5
-
Basel Committee on Banking Supervision (2015b), Guidance on credit risk and accounting for expected losses. December.
Google Scholar
6
-
Claessens, S. & Laeven, L. (2005). What drives bank competition? Some International Evidence. Journal of Money, Credit and Banking.
Google Scholar
7
-
De Haan, L., & Van Oordt, M. R. (2018). Timing of banks’ loan loss provisioning during the crisis. Journal of Banking & Finance.
Google Scholar
8
-
Ellul, A., Jotikasthira, C., Lundblad, C. and Wang, Y. (2014) Mark-to-market accounting and systemic risk in the financial sector. Economic Policy, 29.
Google Scholar
9
-
Ernst & Young Global Limited (2016). IFRS 9 impairment banking survey, September.
Google Scholar
10
-
Frérejacque, P. (2014). From IAS 39 to IFRS 9: An overview. Retrieved from: http://pubdocs.worldbank.org/pubdocs/publicdoc/2015/3/12524961426611752780/Pa.
Google Scholar
11
-
Gruenberger, D. (2012), Expected Loan Loss Provisions. Business-and Credit Cycles.
Google Scholar
12
-
Huian, M. C. (2012) Accounting for financial assets and financial liabilities according to IFRS 9. Annals of the Alexandru Ioan Cuza University-Economics, 59(1).
Google Scholar
13
-
KBA. (2018). Understanding the implications of International Financial Reporting Standards 9 on the stability and functionality of Kenyan banking sector. Conference on financial matters.
Google Scholar
14
-
KPMG. (2015). IFRS 9 creates specific challenges for insurers. Retrieved from https://assets.kpmg.com/content/dam/kpmg/pdf/2016/06/8947-ifrs9-insurers-eng-webf.pdf.
Google Scholar
15
-
Laeven, L., & Levine, R. (2009). Bank Governance, Regulation and Risk Taking. Journal of Financial Economics. 93(2).
Google Scholar
16
-
Marshall, R. (2015). Adoption of IFRS 9 financial instruments. Brussels: European Financial Reporting Advisory Group.
Google Scholar
17
-
Moody’s Credit Outlook (2018), Credit Implications of Current Events
Google Scholar
18
-
Ongore, O., & Kusa, B. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues.
Google Scholar
19
-
PwC (2018). IFRS 9 Interpretations committee agenda. Presentation of interest revenue for certain financial instruments.
Google Scholar
20
-
Shaffer, S. (2010), “Fair value accounting: Villain or innocent victim — exploring the links between fair value accounting, bank regulatory capital and the recent financial crisis”, FRB of Boston, Working Paper, No. QAU10-01, January
Google Scholar
21
-
Wall, L. and Koch, T. (2000), “Bank loan-loss accounting: a review of theoretical and empirical evidence”, Economic Review, Vol. 85, No 2,
Google Scholar
22
-
Zikmund, G., Babin, J., Carr, J., & Griffin, M. (2010). Bussiness Research Methods (8th Edition). South-Western, Cengage Learning, Amazon.
Google Scholar
23
Most read articles by the same author(s)
-
Joshua Wanjare,
Competitiveness and Sustainability of the Co-Operative Enterprise , European Journal of Business and Management Research: Vol. 8 No. 1 (2023)