BCB announced a measure to temporarily reduce the capital requirement for credit operations aimed at small and medium-size companies. Additionally, the National Monetary Council (CMN) enabled financial institutions to maintain renegotiated operations in the risk classification they were in February 2020, before the crisis worsened, reducing the need for a provision for losses. These measures are intended to support the maintenance of the supply of credit and minimize the impact of COVID-19 outbreak on the economy.
Reduced capital requirements
BCB reduced the capital requirement for credit operations for small and medium-size companies. With this change, the Risk Weighting Factor (FPR) applicable to credit operations with small and medium-size companies reduces from 100% to 85%. The change will be applied only to the new credit operations or restructured operations with benefit to the borrower and will be limited to the period from March 16, 2020 to December 31, 2020. After December 31, 2020, new operations will receive the previous treatment; however, operations entered into or restructured during this limited period will remain with the same capital requirement.
Reclassification of loans
CMN allowed financial institutions to reclassify renegotiated operations from March 01 to September 30, 2020 to the risk level they were rated in February 2020. The objective of the measure, which is effective immediately, is to avoid an increase in the volume of provision for losses related to credits renegotiated with economically viable companies. The increase in the provision impacts the supply of credit and, consequently, consumption and income, which further aggravates the economic and financial effects resulting from the fight against COVID-19. This is because provisioning expenses reduce the reference equity necessary to face the risk of the operations undertaken, thus limiting the ability of an institution to take on new risks and, consequently, grant new loans. The measure does not apply to those with a delay of 15 days or more on February 29, 2020 as well as operations with evidence that the counterparty will not be able to honor the obligation under the conditions agreed upon in the renegotiation.
Related Links (in Portuguese)
- Press Release
- Notification on Reduced Capital Requirements
- Notification on Reclassification of Loans
Keywords: Americas, Brazil, Banking, COVID-19, Reclassification of Loans, SME, CMN, Regulatory Capital, Credit Risk, BCB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleRBNZ Finds ANZ Incompliant with Internal Model Capital Calculations
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).