In Summary
  • Capital waiver now limited to provisions on good loans at the end of 2018
  • This came in the wake of adoption of more conservative International Financial Reporting Standards (IFRS9)

Kenyan banks will take a full hit from provisions for new loans issued in 2019 and beyond after the Central Bank of Kenya (CBK) refined its capital waiver rules.

The banking sector regulator had earlier published draft guidelines, which proposed a five-year transition period during which incremental provisions may be added back to earnings for purposes of computing core capital.

This came in the wake of adoption of more conservative International Financial Reporting Standards (IFRS9) and which took effect on January 1.

Expected loan losses

This will see banks provide for expected loan losses rather than those already incurred, potentially reducing their profitability and eroding their capital base.

The CBK says in a new circular to bank executives that the provisions to be added back over the five-year period will now be limited to good loans outstanding as of December 31, 2017 and those issued this year.

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