Region

Jurisdiction

Regulator

2017-03-22

Circular CN-BSD/2017/8: Loan Loss Provisioning: International Accounting Standards vs MMA Standards

The Maldives Monetary Authority issued this circular to resolve discrepancies between international accounting standards and local MMA regulations regarding loan loss provisions. Banks are required to apply the more conservative provision amount, and if MMA standards dictate higher provisions, the difference must be allocated to a non-distributable capital reserve with enhanced disclosure. This approach ensures compliance with both regulatory frameworks while maintaining the integrity of financial statements for users.

Maldives

Maldives Monetary Authority

بسم الله الرحمن الرحيم

MALDIVES MONETARY AUTHORITY MALDIVES

ދިވެހިރާއްޖޭގެ މަރުކަޒީ ބޭންކް

CN-BSD/2017/8

22nd March 2017

To: All Banks

Dear Sir,

Loan loss provisioning: international accounting standards vs MMA standards

The external audits conducted by the audit firms are done in accordance with international accounting standards, which have resulted in the audit opinion having to be qualified or modified, mainly due to differences in loan loss provisions required by those standards when compared to those of MMA.

Therefore in order to address this issue, banks may act as follows:

if the provisions determined using the accounting standards are higher, banks shall make those provisions; as MMA’s regulations mandate that the banks shall set aside the more conservative loan loss provisions between those derived by MMA’s standards and the international accounting standards, and
if the provisions determined using MMA standards are higher, in order to comply with the international standards without affecting MMA’s requirements, banks can show the difference in provisions in a <u>non-distributable capital reserve</u>; with <u>enhanced disclosure</u> that clearly shows (i) the provisions as required by MMA’s regulations and (ii) the resulting profits and capital (under MMA’s standards).

While total profits and capital shown on the financial statements would be higher under (2) than with MMA’s requirements, since the difference in provisions is maintained in the non-distributable reserve and is explained to the users of the financial statements, MMA’s objective is addressed without affecting the requirements under international accounting standards.

Yours sincerely,

(Signature)

Neeza Imad Assistant Governor, Financial Stability