Presidents/ Chief Executives,

All Banks/ DFIs /MFBs

Dear Sir/ Madam,

IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARD 9 (IFRS 9)

Please refer to BPRD Circular Letter No. 07 dated April 13, 2023 regarding the implementation of IFRS 9 by the banking industry from January 1, 2024.

2. Considering the issues being faced by banks/DFIs/MFBs (Financial Institutions- FIs) regarding the implementation of IFRS 9 standard, it has been decided to make amendments and extend the timelines of SBP IFRS 9 application instructions as follows:

1. Scope of Application-Consolidation of Overseas Associates: FIs may continue preparing financial statements based on the host country’s regulatory accounting practices in the case of associates, till such time the IFRS 9 is implemented in that jurisdiction. (Para 1.2 of SBP IFRS 9 Application Instructions)
2. Measurement of Unquoted Equity Securities: FIs are allowed to continue measuring unquoted equity securities at the lower of cost or break-up value up to December 31, 2024. However, FIs shall be required to measure unquoted equity securities at fair value, as required in the IFRS 9 application instructions, with effect from January 1, 2025. (Para 2.2.2 of SBP IFRS 9 Application Instructions)
3. Exposure at Default (EAD) Models: FIs are allowed an extension up to December 31, 2024 for developing the requisite models for calculating EAD for revolving products beyond the contractual date. (Para 3.17 of SBP IFRS 9 Application Instructions)
4. Effective Interest Rate (EIR) Method: FIs are allowed to use the existing practice for recognizing interest income/expense on financial assets/liabilities up to September 30, 2024. However, FIs shall ensure the recognition of interest income/expense on financial assets/liabilities on the EIR method as per the IFRS 9 standard with effect from October 1, 2024.

Similarly, FIs shall measure the subsidized staff loans, extended to their employees as per HR policies, at fair value as per the IFRS 9 standard with effect from October 1, 2024. (Relevant paragraphs of the IFRS 9 Standard)

v. Modification Accounting: FIs are advised to use modification accounting for financial assets and liabilities as per IFRS 9 standard with effect from October 1, 2024. (Relevant paragraphs of IFRS 9 Standard)

3. The FIs are also advised to prepare time-bound plans for implementing the above requirements, duly approved by their Board of Directors, to ensure compliance with the above requirements and the extended timeline.

4. Further, clarifications on some other aspects concerning the IFRS 9 application instructions are attached at Annexure-A.

5. All other instructions regarding the IFRS 9 Application Instructions shall, however, remain unchanged.