RBNZ announced an extension of the regulatory guidance on the concessionary application of prudential capital requirements to loan repayment deferrals. The extension takes effect from when the existing guidance expires on September 27, 2020 and will apply until March 31, 2021. The revised regulatory guidance covers both new applications for loan deferrals and extensions of loan deferrals granted since the beginning of the program. The Annex to the letter provides details about the application of guidance under the relevant provisions of the Banking Supervision Handbook. RBNZ is considering whether to require additional data reporting from lenders with respect to the deferred loans and will be in contact with the industry during August to further discuss this.
The extended guidance will allow banks to treat loans deferred under the program as performing (non-defaulted), provided they were not otherwise recorded as in arrears, on a watchlist or impaired in any way at February 29, 2020. RBNZ considers the standard regulatory settings, as reflected in the existing text of the Banking Supervision Handbook, to be appropriate in the medium term. These settings will resume once the guidance expires on March 31, 2021. RBNZ expects lenders to only approve an extension or new loan deferral where there is a need for it and a benefit to the borrower and where the lender assesses that there is a reasonable prospect of that customer resuming payments when the deferral period ends. RBNZ does not anticipate that banks will need to carry out new valuations of security as part of this process, although such an approach may be needed in some cases where loans are being restructured. There are other regulatory obligations that lenders must consider in granting new or extended deferrals to customers. For example, lenders have obligations under the Credit Contracts and Consumer Finance Act and the Responsible Lending Code.
RBNZ announcement also states that the government has approved an extension to the addendum to the Responsible Lending Code introduced in response to COVID-19. The addendum has been extended until March 31, 2021 and aligns with the updated regulatory guidance. Furthermore, RBNZ recognizes that lenders will need to follow IFRS 9 accounting rules for loan provisioning. Till date, there have been varying levels of reasonable and supportable information regarding the correct treatment of loan provisions in the context of COVID-19, but the extent of this is becoming clearer over time. RBNZ will continue to monitor developments in this area. Loan deferrals may have an impact on loan-to-value ratios of borrowers. RBNZ has removed loan-to-value restrictions for 12 months starting from May 01, 2020. Therefore, no loan-to-value restrictions are associated with eligibility for loan repayment deferrals in the period up to March 31, 2021. To support the extension of the loan deferral arrangements, RBNZ has also decided that mortgages impacted by the temporary deferral can be included in Internal Residential Mortgage Backed Securities loan pools, subject to certain requirements.
Keywords: Asia Pacific, New Zealand, Banking, COVID-19, SME, Regulatory Capital, Credit Risk, IFRS 9, Payment Deferrals, Basel, Loan-to-Value-Ratio, Reporting, RBNZ
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