At the beginning of 2018, the Central Bank of Nigeria (CBN) introduced a new accounting regime for banks to follow.
The most significant feature of the new standard, called the International Reporting Standards 9 is the requirement for banks to make anticipatory provisions for bad loans. In a nutshell, where banks were previously called to make provisions for bad loans that had already gone into repayment default, they will now, under IFRS9, be called upon to make provisions for loans that have already shown clear features of going bad. Where, previously, bad loans were determined by past events, they will now be open to consideration of ongoing events such as the failure of the debtor to meet other accrued obligations.
The impact of this regime is that profitability of most of the banks will take an initial spiral in the 2018 financial year. The making of provision will take place sooner and more often. In time, however, the new regime may have the salutary effect of ensuring earlier prevention of insolvency.
