Bank of Ghana writes off GH¢3.1 billion loan after adopting new accounting rule

Bank of Ghana writes off GH¢3.1bn in loans in 2018.
The move is due to a new accounting rule the central bank has adopted.
The new rule took effect globally on January 1, 2018, forcing all relevant institutions to adopt it in the reporting of their financial standards.

The action, the report said, was largely due to a change in the method used to report the bank’s financial statements.

Bank of Ghana’s impaired losses

Last year, when BoG started reporting its financial statements per the International Financial Reporting Standards Nine (IFRS 9), the bank’s bad loans, technically called impairment losses, rose from 13% of the gross loans and advances in 2017 to 39%.

The increased impairment led to the central bank reporting a net loss of GH¢793.09 million in 2018.

The loss for the year under review was almost half of that of GH¢1.64 billion posted in 2017.

An analysis of the bank’s 2018 report showed that but for the impairment, which was GH¢3.1 billion, BoG could have posted a net profit above GH¢1 billion in that fiscal year.

The impairment was on a gross loan book of GH¢7.88 billion, which was advanced to financial institutions and other quasi-government institutions, according to the annual report.

International Financial Reporting Standards Nine (IFRS 9) standards

Issued by the International Accounting Standards Board (IASB) in July 2014, the IFRS 9 is a set of financial reporting standards that hinge on the classification and measurement of financial instruments, impairment of financial assets and hedging of accounting.

It took effect globally on January 1, 2018, forcing all relevant institutions to adopt it in the reporting of their financial standards.

Implications on shareholders

The impact of the IFRS 9 on the profit and loss account of BoG gives a glimpse of what the new reporting standards holds in store for banks and their shareholders.

Experts explain that the increased impairment requirements under the IFRS 9 had implications on the pricing of loans, the profit and the capital of banks.

While the old regime of financial reporting required banks to have “objective evidence” that the customer was having difficulty repaying the loan before impairment, IFRS 9 says "you do not need to wait, you have to make an assumption and provision for it.”