The Bank of Israel today announced that the banks will be required to adopt US Generally Accepted Accounting Principles (GAAP) regarding employee benefits from January 2015. The Bank of Israel had previously planned to adopt International Financial Reporting Standards (IFRS) International Accounting Standard (IAS) 19. The two methods differ in nuance, rather than substance, but the choice of GAAP standards indicates that the Bank of Israel intends to adopt more US standards in the future.
The main bank that will be affected by the GAAP standard is Bank Leumi (TASE: LUMI), because of its large non-budget pension liabilities to employees. Adopting the GAAP standard will reportedly reduce the bank's shareholders' equity by up to NIS 2 billion.
Israel Discount Bank (TASE: DSCT) and First International Bank of Israel (TASE: FTIN) were exposed to the switch IAS 19, but in smaller amounts.
The effect on regulatory capital will be gradual, in accordance with the Supervisor of Bank’s capital adequacy (the ratio between a bank's shareholders' equity and its risk assets, especially credit risk) directives (Basel III Guidelines), and will be spread out until 2018. Were these directives not spread out, some banks, especially Bank Leumi.
Published by Globes [online], Israel business news - www.globes-online.com - on February 2, 2014
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