The Bank of Israel intends to direct banks to adopt U.S. accounting rules in their financial statements, sources inform Globes.
Banking sources say that the GAAP standards are more stringent than IFRS (International Financial Reporting Standards), allowing less latitude in calculating and valuing various items.
The transition will be gradual, likely beginning with liabilities to employees. Bank Leumi stands to be most affected, with a high liability to employees, because of its commitment to pay generation A employees unfunded pensions. It is estimated that implementation of the standard will reduce the bank’s shareholders’ equity by possibly as much as NIS 2 billion.
Other banks to feel the change will be Israel Discount Bank and First International Bank of Israel.
The changeover is scheduled for 2015, but as early as 2014, the banks may be required to publish an estimate of the effect of the new standard in their next financial statements.
The effect on capital adequacy should be mitigated by the banks’ ability to spread the transition over five years. This is an important consideration, since a reduction in capital adequacy would hamper the banks’ ability to extend credit.