Title: The impact of IFRS 9 adoption, loan reclassification and earnings quality: evidence from banks in East Africa region

Authors: David Mutua Mathuva; Moses Nzuki Nyangu

Addresses: Strathmore University Business School, Strathmore University, P.O. Box 59857, 00200 Nairobi, Kenya ' Strathmore University Business School, Strathmore University, P.O. Box 59857, 00200 Nairobi, Kenya

Abstract: This study examines the impact of IFRS 9 adoption and loan reclassification on the earnings quality of East African banks. Using data from 70 commercial banks between 2015 and 2020, we employ a difference-in-difference approach with generalised method of moments (GMM) to evaluate pre- and post-IFRS 9 effects. The findings indicate that East African banks exhibit lower earnings quality compared to those in more developed economies, with modest improvements following IFRS 9 adoption. We find that bank earnings before loan loss provisions (LLPs) are positively associated with higher earnings quality. Further, whereas over half of loan reclassifications show significant improvements in credit quality (SICR), their effect on earnings quality is limited. Moreover, banks operating under stronger supervisory oversight tend to report higher earnings quality. Overall, the study provides some evidence that IFRS 9 has the potential to strengthen credit risk management and earnings quality of banks in developing economies.

Keywords: IFRS 9; earnings quality; loan reclassification; credit risk; East Africa.

DOI: 10.1504/IJAF.2025.154803

International Journal of Accounting and Finance, 2025 Vol.12 No.4, pp.211 - 237

Received: 11 Feb 2025
Accepted: 07 Dec 2025
Published online: 14 Jul 2026 *

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