Case Study - Navigating IFRS 9 Implementation for Foreign Banks in Oman

Overview

Two leading foreign banks operating under a local regulator in Muscat, Sultanate of Oman, embarked on a critical project for the first-time adoption of IFRS 9 "Financial Instruments". The project involved developing an Excel model to assist in impact assessment and gap analysis, executed in two phases.

Customers:

• Leading branches of foreign banks
• Country: Muscat, Sultanate of Oman
• Industry: Financial sector – Bank
• Project completion date: 31 December 2017

Problem Statement

The primary challenge for both banks was to implement IFRS 9 effectively, ensuring compliance with new standards while managing impact on financial reporting and regulatory capital requirements. Key issues included:

• Developing a robust ECL model incorporating forward-looking information.
• Selecting historical data for probability of default calculations.
• Addressing data quality issues and establishing data governance practices.
• Selecting suitable measurement methodologies for assets and determining appropriate ECL parameters.
• Ensuring seamless integration of the new framework with existing systems and processes.

Technical Solution

Our technical IFRS expertise led to the following solutions:

• ECL Model Development: Collaborated with banks' risk and finance teams to design a comprehensive ECL model, utilizing econometric models and historical data.
• Data Quality Improvement: Identified data quality issues, established controls, and developed data governance practices.
• Methodology Selection: Guided the selection of ECL measurement methodologies based on asset classes.
• Integration: Ensured seamless integration of the ECL model into existing systems for automated calculations and reporting.

Results

The implementation of IFRS 9 had significant positive outcomes:

• Improved Financial Reporting: More accurate, forward-looking, and transparent financial statements, enhancing investor confidence.
• Enhanced Data Quality: Better ECL calculations and risk assessment, reducing credit loss likelihood.
• Regulatory Compliance: Full compliance with IFRS 9, avoiding penalties and maintaining a favorable reputation with regulators.
• Operational Efficiency: Streamlined reporting processes, reducing manual effort and operational costs.

In conclusion, the project exemplified the critical role of technical expertise in navigating financial reporting standards, improving financial stability, and operational efficiency.