CBUAE, ADGM and DIFC issue a joint guidance on the application of IFRS9

The Central Bank of the UAE (CBUAE), the Financial Services Regulatory Authority (“FSRA”) of Abu Dhabi Global Market (“ADGM”) and the Dubai Financial Services Authority (“DFSA”) of Dubai International Financial Centre (“DIFC”), collectively the “Authorities”, have today issued joint guidance for banks and finance companies in relation to the application of International Financial Reporting Standard 9 (“IFRS 9”) during the current circumstances caused by COVID-19.

The Authorities regulate and supervise banks and finance companies that may have clients experiencing financial stresses as a result of the COVID-19 outbreak. The CBUAE has already taken action to provide banks and finance companies a number of relief measures available under the Targeted Economic Support Scheme (TESS), given the economic disruption caused by COVID-19, effective from 15 March 2020. The Authorities are supporting both federal and local initiatives aimed at providing sustainable solutions to support borrowers who will be utilising government-sponsored debt relief programs at this time.

In addition to these measures the CBUAE, FSRA of ADGM and DFSA believe that the flexibility embedded in the IFRS 9 framework should be employed to cope with the current crisis by banks and finance companies that are part of the TESS. To assist these banks and finance companies, the Authorities will be publishing specific guidance with respect to the calculation of Expected Credit Loss (“ECL”) provisioning under IFRS 9.

The guidance, developed collectively by the Authorities, provides practical solutions for banks and finance companies in managing the impact of the current economic uncertainty on ECL, while remaining compliant with IFRS 9 and promoting consistency of approach. The overriding objective of the guidance is to ensure that financial reports are based on up to date estimations of the risks faced by banks and finance companies, while recognising the magnitude of support measures implemented by the Authorities, and acknowledging that the decision-making process related to IFRS 9 application will need to be adjusted in the current environment. The joint guidance has been released simultaneously by the Authorities to their regulated banks and finance companies, targeted at those that are participating in the TESS. The Authorities encourage those institutions to review the guidance and reach out to their respective supervisors for further clarification, if required.