The Central Bank of Jordan Issues the International Financial Reporting Standard (IFRS-9) Implementation Instructions

The CBJ has issued last week the instructions for implementing the International Financial Reporting Standard (IFRS-9) which was issued by the International Accounting Standards Board (IASB) in July 2014. The effective date of the standard is January 01, 2018. This standard came as a response to lessons learned from the global financial crisis 2007-2008, and aims at treating the vulnerabilities in the banking institutions around the world, of which, specifically, insufficient and untimely hedging against credit risk that these institutions face, whereas IFRS-9 is based on a new forward-looking approach in assessing credit risk and hedging against it proactively, instead of using incurred loss approach.

The CBJ clarified that the proper implementation of the new standard requires coordination and integration between different functions within each bank, particularly the units responsible for credit, risk management, financial and information technology. The CBJ also confirmed to the banks the necessity of committing to best corporate governance practices through direct oversight of the implementation process by the board of directors in order to achieve the desired results of the new standard.

It is noteworthy, that the CBJ, out of its keenness to keeping up with best international practices, has early initiated the preparations for implementing IFRS-9, as a circular for the banks clarifying the general framework for the requirements of the new standard was issued since May 2016. At the time, banks were asked to provide the CBJ with their implementation plan, this was followed by the issuance of the first draft of the instructions in November 2017.

Succeeded by the issuance of the second draft on 25^th January 2018, in addition to meetings with executive managements of the banks and the attendance of external auditors. By these steps the CBJ aimed at diagnosing the challenges and obstacles facing Jordanian banks regarding the implementation of IFRS-9, provide the banks with the necessary support and assistance to overcome them, and in order to sustain the CBJ’s pioneering leadership for the Jordanian banking sector, and maintaining the position of the banking sector as one of the most important pillars of the national economy.