Impact Of International Financial Reporting Standard 9 (Ifrs 9) Implementation On Financial Performance Of Commercial Banks In Kenya

Abstract

The purpose of this study was to do a comparative analysis of the effect of IFRS 9 on performance of Kenyan commercial banks. The study compared the financial performance before and after the implementation of IFRS 9 reporting standard. The specific objectives were to determine the effect of fair value adjustment on performance of commercial banks in Kenya following the implementation of IFRS 9; to establish the effect of expected credit loss impairment review method on financial performance of commercial banks in Kenya following the implementation of IFRS 9; and to establish the effect of loan amortization approach on performance of commercial banks in Kenya following the implementation of IFRS 9. The study used descriptive research design and targeted all commercial banks in Kenya for the period of 2017 to 2018. All the 42 commercial banks licensed by the Central Bank of Kenya were selected for the study. Secondary data was obtained from audited financial statements. A total of 26 commercial banks had complete financial data for the computation of fair value adjustment, expected credit loss and loan amortization variables. STATA software was used for descriptive and inferential statistical analyses. Descriptive analysis was used to compute means and standard deviations, while inferential analyses, specifically paired sample t tests and panel data regression, was used to determine the relationship between the implementation of IFRS 9 and financial performance of commercial banks in Kenya. The findings were presented using tables. Findings show that fair value adjustments were higher in 2017 than 2018; however, there was differences in means was not statistically significant. Panel regressions showed that fair value adjustments had a positive but statistically insignificant influence on financial performance. Expected credit loss impairments were higher in 2018 than 2017, with paired sample t tests indicating a statistically significant difference in reported expected credit loss impairments before and after the implementation of IFRS 9. Expected credit loss impairments had a negative effect on ROA; the influence was not significant. Loan amortization costs remained stagnant in 2017 and 2018, and the differences in means was not statistically significant. Panel regressions demonstrated that loan amortization approach had a negative effect on the financial performance of commercial banks. These findings indicate that considerations for the changes in classification and calculation of credit losses need to be taken into account in strategies for profitability growth and financial stability.