Confab Reviews IFRS Adoption, Risk Management of Banks

EghtesadOnline: Due to the importance of conforming banks' balance sheets to International Financial Reporting Standards and establishing risk management departments, the second and final day of the 27th annual Conference on Monetary and Foreign Exchange Policies in Tehran focused on these two issues.

News ID: ۷۴۲۴۶۶

03 July 2017

International and domestic banking experts elaborated on ways of reforming the risk management systems of banks and the necessity of their compliance to IFRS standards to connect to the international banking system.

Jaap Van Dijk, an international banking expert and associate partner at Philip Sydney, an Amsterdam-based risk management firm, underscored the necessity of overhauling the methods of risk management in Iranian banks.

"Implementing IFRS in financial statements is a big change for banks and requires more coordination between their financial and risk management departments," Financial Tribune quoted him as saying.

The Central Bank of Iran first released the IFRS-based balance sheet templates in February and seriously pursued the complete implementation of IFRS and other international banking requirements such as Basel Accords to improve financial transparency and the international operations of Iranian banks.

In order to highlight the importance of risk management in banks, Van Dijk noted that the ratio of banks' non-performing loans should not exceed the range of 5-10% and if the figure is higher than 15%, it threatens the solvency of the bank.

Angelo Tanttazi, another banking professional who is a professor of economic policy at the University of Bologna, explained the implication of implementing the Basel Regulations for Iranian banking system.

"A risk management department plays a crucial role in banks since it supports the business and investment department by providing them with the information on markets' risks and liquidity," Tanttazi said.

The expert, who is also the founder and chairman of Prometeia Institute in Italy, believes credit risk is a far more important risk than other kinds of risks.

A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments.

Tanttazi noted that international ratings are accurate analytical tool for banks since they are conducted by a third party that evaluates the risks of all domestic and international business partners of the bank.

This is while Director General of Iranian Association of Certified Public Accountants Seyyed Mohammad Alavi believes that Iran lacks the foundation for implementing IFRS.

"In order to establish economic relations with other countries, we need to comply with international regulations, therefore all responsible bodies need to work together to conform with IFRS regulations," he said.