SECP Extends IFRS-9 Applicability Date for Non-Banking Finance Companies and Modarabas

The Securities and Exchange Commission of Pakistan (SECP) has extended the effective date for applicability of International Financial Reporting Standard 9– Financial Instruments (IFRS-9) for Non-Banking Finance Companies (NBFCs) including Non-Bank Microfinance Companies (NBMFCs) and Modarabas till 30th June 2024. This extension has been granted in the wake of economic hardships and capacity issues being faced by the respective sectors in the post-COVID times as well as for providing a level playing field to the NBFCs/Modarabas in line with the extension granted by the State Bank of Pakistan (SBP) for Banks and Development Finance Institutions (DFIs) till 1st January 2024. International Accounting Standard Board (IASB) replaced International Accounting Standard 39 with IFRS-9 effective from 1st January 2018. The new standard can have a substantial market impact and requires, in particular, the application of new impairment requirements i.e. expected credit loss (ECL) which requires all NBFCs to establish provisions for expected future credit losses. Under the IFRS-9 ECL approach, NBFCs need to consider current conditions and reasonable and supportable forward-looking information that is available without undue cost or effort when estimating expected credit losses. Currently, only 17 out of 42 members of NBFI and Modaraba Association of Pakistan, and only two NBMFCs have adopted the Standard. SECP is actively engaged in the encouraging early adoption of the IFRS-9 Standard and has clearly stated that no further extensions shall be granted in the future. The SECP has also directed the NBFCs and Modarabas to formulate and submit their board’s approved time-bound action plans containing timelines, capacity-building measures, and any other activities required for the effective implementation of IFRS-9 by 31st October 2022. Moreover, the NBFCs and Modarabas have also been directed to submit a periodic status update to the SECP on 31st December 2022, 31st March 2023, and 30th June 2023.