IFRS 9 Implementation and Transitional Arrangements in Saudi Arabia

39100002973.1-: �_)I 1439/03/15 : �__;L-.:.ll ------=�.,._JI , <li� �J cllll <L4> ->J � r)LJ I .�WI ..:,I 10 10? ol l 4; o;h ii ll �� �Lil.;)'\ ..:.,�jJlj ..::..jj.l.l �I :t,-+o,..ll (IAS 39) i'\ f-9-> JJ...ul �WI .)� � � r,. \ t r� (IFRS 9) "�Lt.I ..:.,\3}�" '\ ·r, · \ A Y-L½ \ 0-4 1'1...1..½I �Ip J>..1.: l?.iJ\3 4Lil.i':/I ..:.,�_jJl3 ..::..jj.l.\ �\ ..:.,->--4oi �\ ._g�>t) Jj½ � ui �� � (hnps://www.bis.org/bcbs/publ/d401.pdf) �b.1.1..::..11o 1..,-;,oll <t;o;h;;ll �� ..1S'y3 - .)�\ \� J?.)71 �� ..:..!fa.WI t.fa, t-'"'Ji � foj-ll �t,g)\ ..::..�13 � :Jl:J\ •.cl\ .) · Jla.:u':/.........w;t\ ..:..,g'-t-.dL \•,;l)'\�dl - �.,....., '.J-lj - .• '.J'-'� :r (l;:'r". (°'.J'-' :r JU.I u-"G uay-i-1 '4oWI ..:-,1,..,,..,::J.13 d..oWI ..::..�1 � �1 � � - ,Jj)I\ d..1>.)1 ..::..l,o,o?4 J4! cG..)l � , (i) f°9.) �\ J .)},JI�
J (rY-"' 0-4 J.9i3 rY-'. 0-4 p)I ��)�WI d..1>.)1 wl fO j0?4 ..!.LIJ53 db .)1 .:-,I,.., so ::J. Cle-JI J?.i 0-43 .(Tier 2) �WI ��I ..uWI JU.I u-"� d.ti u-' • t • ..o..:G':/1 ..bb..o · i � 4..,.j\ ..::..l.il.u ..:..lo- 1 • ...!.l.i..JI .c...u · .. <. · i � ,<LuWI U _; U . • � •. 'J � . 1.,;1 U.J-1'= U . . • • � la..933 ·rY- i · u,o p)I o..)�\ _P.;i-3 �; wll ..::..l.o\jJ)U .bydo � �� Jk:-J 0-4 %,,o d..oWI ..:.,�\ j3� ':l'i � ,'' Jj½ ..:.,� l?.J�\ .uk:u':111 �b.J. �.)I J�)II � 0-4 __,J)I\ �jy � , (t) f-9.J �I J o..)},_JI �Lil.;)'\ ..::..�_jJI � � . ..::..ly-w o c_5...Lo t.fa. �I JU.I L.!"'G t.fa. '\ f-9.J JU.I y� JJ...ul .)�I '-:-'W>':/ �WI �I J .)},JI �L½...ul �\ ..!.l�I r� ui � _;� 0..1.:..l::" ..:.,� I'� 4�\ .)�':/\ J .b-)ll 4Lil.i':/I ..:.,!fa.WI .0.o.:G':l'I

�,..Jl�,.J.I ------- :.µl,..JI � ..!..!�I uW ,(1) r-9-> �I j .)),JI WWI op.)1 ..:..L>Wj � � ,..:..L>W)'I � J '4--!l11 WGJI_, Jl11 U"'G � tfa. �la.:;_;�\ ..:..4.}JI _;i �liw ...Lil ..:..�..wl L..L.L\L.UI 1l..a...o Llla.:;.;�I ..:..�..wl ............JI · t.:.. ! � . lJ-! · i <....J..::t:.J cf.,

• j . �Y. � u ... I.?" J -�· ""'-,.,._,•I Ji .Ji I� � ..14> i <L, LI 11 .b..9 � I I < • 'j-'-' �j .�la.:;.;�I ..:..4.}JI .)_p.:, r�J J� �I �I �Jl

Background IFRS 9 (International Financial Reporting Standard - 9) - "Financial instruments" issued on 24 July 2014 by the IASB's (International Accounting Standards Board) is a replacement of IAS 39 "Financial Instruments: Recognition and Measurement". This standard includes requirements for recognition and measurement of assets, impairment, de￾recognition and general hedge accounting. The version of IFRS 9 issued in 2014 supersedes all the previous versions and is effective globally for accounting periods beginning on or after 1 January 2018 with an early adoption permitted. In Saudi Arabia, this standard is applicable from 1 January 2018. In 2016 and 2017, SAMA has undertaken various quantitative impact studies along with detailed consultation process with the Saudi Banks for the implementation of this accounting standard. This has resulted in issuance of a detailed guidance document in 2016 around the following topics: • IFRS 9 governance and risk frameworks highlighting the role and ownership of finance, risk, treasury and various other business functions • Classification and measurement of assets • Definition of past dues • Clarification around impairment of assets • Quantitative and qualitative disclosures applicable from December 2016 onwards • Impact on Capital Adequacy Ratio (CAR), Leverage Ratio (LR) and Balance sheet and Income Statement Transitional arrangements Based on various discussions and results of the quantitative impact studies, SAMA has decided to adopt Basel standard on "Regulatory treatment of accounting provisions - interim approach and transitional arrangements" available on Basel website https://www.bis.org/bcbs/publ/d401.pdf. In addition, SAMA has exercised various national discretions as clarified in the following table: Page Summary of Basel SAMA's national discretion reference of paragraph Basel document 3 Distinction between Total stage 1 provisions and only those stage 2 provisions, which are General Provisions and past dues for more than 30 days but less than 90 days, should be

-- _______, Specific Provisions for included in Tier 2 regulatory capital. In order to allow S,!_age 2 regulatory capital purposes provisions, the bank should have reasonable and suppo(table information demonstrating that even if contractual payments are more than 30 days past due, this does not represent a significant increase in credit risk. However, as per Basel rules, the use of general provisions should be limited to 1.25% of total credit risk weighted assets under the Standardiz.ed Approach. 4 Transitional Approach Day 1 impact of IFRS 9 (applicable from 1 January 2018) on regulatory capital should be transitioned over five years. 0 Choice of static vs. dynamic The Banks should use a dynamic approach for reflecting the impact of transitional approach this transition. 6 Pillar 3 disclosure The Banks should publish details of the impact of the transitional arrangements on their Capital and Leverage ratios in their Pillar 3 disclosures Template KM1. This should clearly show position for both transitional vs fully loaded ratios (if transition not applied).