The State Bank of Pakistan (SBP) has issued revised instructions to facilitate the implementation of the International Financial Reporting Standard 9 (IFRS 9) for financial institutions, including banks, Development Finance Institutions (DFIs), and Microfinance Banks (MFBs).Â
The updated directives, outlined in a circular dated January 22, 2025, introduce amendments in key areas to address industry-specific needs.
According to the SBP, modification accounting will now be applied retrospectively, effective on loans modified on or after January 1, 2020. Financial institutions are also permitted to maintain general reserves and provisions above the Expected Credit Loss (ECL) for Stage 1 and Stage 2 loans until December 31, 2026.
Islamic Banking Institutions (IBIs) are allowed to adhere to Islamic Financial Accounting Standards (IFAS) 1 and 2 for applicable products while continuing existing methodologies for other Islamic offerings.Â
However, IBIs must disclose the potential impact in their financial statements if IFRS 9 were fully adopted. The SBP also reiterated that charity funds generated through Islamic products should not be recognized as income, in line with prior instructions.
The SBP emphasized that all other guidelines issued under IFRS 9 remain unchanged. These measures aim to streamline compliance while addressing the unique operational requirements of financial institutions in Pakistan.
