KUALA LUMPUR (July 12): It is too early to judge the impact from the implementation of Malaysian Financial Reporting Standard 9: Financial Instruments (MFRS 9) to the credit costs of Alliance Financial Group Bhd (AFG), said its chief executive officer Joel Kornreich.

He said the banking group's credit costs would not be largely impacted by the standard for its financial year ending March 31, 2018 (FY18) as MFRS 9's implementation in Malaysia is with effect from April 1, 2018.

Nevertheless, he said the group will make a one-time adjustment in FY18 in anticipation of the standard's implementation.

"Like every other bank, [the group will make] a one-time adjustment in FY18 but we don't anticipate this adjustment to be very large as we already have a 1.2% [of total loans] regulatory reserve that has been booked to buffer the impact," Kornreich told a news conference after the group's annual and extraordinary general meetings today.

"Having said this, it's too early for us to know the ongoing impact of MFRS 9, although we will do the best that we can to actually mitigate that impact," he added.

AFG reported a net profit of RM512.1 million in FY17, a 1.9% decrease from RM522 million in the previous financial year due to higher credit costs.

"Our net credit costs in FY17 are higher than FY16, they were a little under 25 basis points which is along the lines that we had guided, for FY18 we have guided credit costs of around 35 basis points," said Kornreich.

CIMB Research in a July 10 note said the adoption of MFRS 9, which will change the provisioning methodologies from incurred loss to expected loss, is expected to lead to higher credit costs for banks, as they will have to make provisions for new loans upon adoption.

This differs from the current practice of banks, which is to only make provisions for those loans that have been classified as impaired, the firm shared.