The Saudi Central Bank (SAMA) has made it a rule that all banks and financial companies in Saudi Arabia must follow IFRS 9. This rule started on January 1, 2018. IFRS 9 is a global accounting standard made to help banks show their true financial position.
What is IFRS 9?
IFRS 9 stands for International Financial Reporting Standard 9. It tells banks how to:
- Record money they lend.
- Show losses from loans.
- Keep track of financial tools like bonds and investments.
The biggest change from old rules is that IFRS 9 Saudi Bank uses the Expected Credit Loss (ECL) model. This means banks must predict losses early instead of waiting until a customer fails to pay.
Key Requirements Under SAMA Regulations
- Expected Credit Loss (ECL) Model
- Banks must check all loans and credit accounts.
- They must estimate possible losses before problems happen.
- This helps protect the banking system from sudden shocks.
- Banks must check all loans and credit accounts.
- Loan Staging
SAMA requires banks to group loans into three “stages”:
- Stage 1: New loans or loans with no risk. Losses predicted for the next 12 months.
- Stage 2: Loans with higher risk. Banks must predict losses for the whole life of the loan.
- Stage 3: Loans already in default. Losses recorded immediately.
- Stage 1: New loans or loans with no risk. Losses predicted for the next 12 months.
- Governance and Controls
- Banks must build strong systems to check risk.
- Management must approve and review ECL models.
- External auditors also check if banks follow IFRS 9 correctly.
- Banks must build strong systems to check risk.
- Disclosures
- Banks must explain in their reports how they measure risks.
- They must show how changes in the economy affect credit loss.
- This makes financial reports more transparent and helps investors trust the system.
- Banks must explain in their reports how they measure risks.
Why Did SAMA Enforce IFRS 9?
SAMA’s goal is to make sure:
- Banks stay safe and stable.
- Customers’ money is protected.
- The financial system can handle global challenges.
By using IFRS 9, Saudi Arabia’s banking system is now closer to international best practice.
Conclusion
IFRS 9 under SAMA regulations makes banks in Saudi Arabia more careful and forward-looking. By predicting losses early, grouping loans into stages, and being open in reports, the system becomes safer and stronger.