UK Banks Could get One-off Capital Increase on Adoption of IFRS

The adoption of International Financial Reporting Standards (IFRS) by UK banks – as specified in the European Commission Transparency Directive of May 2004 – may result in a one-off increase in capital for most banks, according to a report by Moody’s. The UK banks are also expected to experience some decline and some greater volatility in their income under IFRS compared with financial results reported under the current UK General Accepted Accounting Principles (GAAP), said Moody’s. However, there should be no impact on Moody’s ratings of UK banks. IFRS, which will be adopted by UK banks on 1 January 2005, differs from UK GAAP in a number of important areas, and some of these differences are expected to have an impact on the financial results reported by UK banks. ‘The overall effect is difficult to predict but, on adoption of IFRS, UK banks will report a one-off increase in capital, resulting from re-measurement of certain assets and liabilities to fair value. On an ongoing basis, the income of UK banks may be somewhat lower compared with results reported under UK GAAP, mainly because these banks will be expensing share options granted to employees,’ said Moody’s.

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