The significant accounting aspect is recognition of the 12-months expected credit losses immediately a loan/credit is issued (including guarantees, credit cards etc). IAS 39 focused on impairment after the default event while IFRS 9 is the expected losses even before the default event.

The SLRs are a regulatory concept. Basel III still has this option open. So CBK's guidance is what's ultimately key though it will be a mirror of Basel rules. Based on Basel the excess provisions still count towards tier 2 capital subject to a max of 0.6% (or as set by the regulator) of CRWA during the transitional phase.

Read more http://www.bis.org/bcbs/publ/d401.pdf

Very informative. If the regulator has so much leeway "...subject to a max of 0.6% (or as set by the regulator)" then isn't Basel III just a guideline at best i.e. banks may not be adequately capitalized in some countries even if they meet the local guidelines.

"What is the impact of provisions on regulatory capital?

The current regulatory treatment of General and Specific Provisions depends on whether a bank uses the Standardised approach or Internal Ratings Based (IRB) approach for calculating regulatory capital.

Standardised approach: Exposures are measured net of specific provisions and gross of general provisions for calculating capital requirements. Further, Banks are permitted to include general provisions in Tier 2 capital up to a limit of 1.25% of credit risk weighted assets (RWAs). Specific provisions do not qualify for inclusion in Tier 2 capital.

IRB approaches: All exposures are measured gross of specific provisions and partial write-offs. The Basel II framework defines “total eligible provisions” under the IRB approaches as the sum of all provisions (e.g. specific provisions, partial write-offs and portfolio-specific general provisions such as country risk provisions or general provisions) that are attributed to exposures treated under the IRB approaches including any discounts on defaulted assets.

Under the IRB approaches, any shortfall between total eligible provisions and regulatory expected loss (EL) is deducted from Common Equity Tier 1 (CET1) capital, whereas any excess is added to Tier 2 capital, up to a limit of 0.6% of credit RWAs calculated under the IRB approach.

Under IFRS 9, a rise in impairment depletes the capital adequacy of banks that use the Standardised approach to credit risk, as the 1:1 reduction in capital arising from increased impairments is not offset by reduced RWAs. The result is less clear-cut for IRB banks, reflecting the more complex relationship between impairment and the outcomes of the IRB capital formula. A further complication for IRB banks will arise from the implementation of capital floors based on Standardised RWAs, as IFRS 9 is a further factor in the assessment of whether or not the floor will be binding.

These impacts could be particularly marked in a stress, which could result in banks requiring additional capital to cover potential downturn impacts."

I dont expect KCB ratios to come down anytime soon.In the last two years,the bank has made good efforts to address the same through scrip dividend and a long term loan secured from abroad with flexible terms.
Progress are underway to acquire NBK which will further strengthen the liquidity ratios of the bank.I expect this takeover to completely seal any fear of a looming thinning ratios.

A good excuse to recapitalize the whole bank to meet IFRS 9 requirements by using NBK as the red herring.

BTW, I wonder if NBK, in its current state, will meet IFRS 9's requirements.

What @Obiero said to me about KQ! but believe what you want!