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The impact of IFRS 9 on banking sector regulatory capital

A paper to help banks take the first step towards understanding the impact of IFRS 9 accounting rules on their regulatory capital position.

The International Accounting Standards Board (IASB)’s IFRS 9 standards will require banks to recognise impairment sooner and estimate lifetime expected losses against a wider spectrum of assets. The implementation of these standards in January 2018 are widely expected to increase the stock of credit impairment provisions and affect profits.

This paper seeks to help banks navigate these changes and take the first step towards managing the impacts of IFRS 9 by outlining:

  • The drivers of rising impairment under IFRS 9
  • The regulatory capital impacts
  • More detail on the different impacts on Standardised and Internal Ratings Based (IRB) banks
  • The impact on stress testing and capital buffers 

The paper concludes with two core recommendations to banks transitioning to IFRS 9 and a worked example of IFRS 9’s impact on Standardised banks’ capital adequacy.

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