Fair Value Accounting and Loan Loss Provisioning- Early Evidence from Nigerian Banking Industry

Abstract

The purpose of this study is to investigate the Loan Loss Provisioning under International Financial Reporting Standards (IFRS) and Nigerian Prudential Guidelines. The audited first time annual reports of four Nigerian banks were analysed.  Simple percentages and tables were used to determine the relationships between the figures thrown out by the two provisioning models. We found that prudential guidelines provisions were more aggressive and higher in all cases than IFRS provisions. In other words, the profit figures under prudential guideline model were more conservative than the corresponding figures under the IFRS model. The result of the study was based on 1 year 2012 audited first time IFRS accounts of 4 Nigerian banks and therefore cannot be generalised but regarded as rather indicative of the differences between the two models. The paper has practical implications for Nigerian regulatory authorities and in particular the CBN who may wish to retain its Loan Loss Provisioning Model or transmute to the IFRS model. This is about the first study on Nigerian banks on this subject matter post mandatory adoption of IFRS in 2012 and, has added to our knowledge of IFRS Loan Loss Provisioning compared to the Nigerian Prudential guideline model.

Key Words: IFRS, Fair value, Prudential Guidelines, Loan Loss, Early Evidence.