CMF published a regulation that modifies the treatment of State Guarantees for the calculation of risk-weighted assets, or RWAs, of banks. To this end, CMF published amendments to Chapter 12-1 of the Updated Compilation of Rules for Banks. The modified treatment applies to the amounts guaranteed by the Chilean State, the Production Development Corporation (CORFO), and the Guarantee Fund for Small Entrepreneurs (FOGAPE). As per the revised treatment, these amounts are incorporated into category 2 of the risk-weighted asset classification, which consequently passes from having a weighting for credit risk from 100% to 10%. CMF consulted on these amendments in July 2020.
As part of the measures adopted by economic authorities to deal with the impact of COVID-19 outbreak, this modification is expected to increase the core capital indicators of banks, thus improving the conditions for institutions to transfer liquidity to markets. The new treatment is in line with the international standards and is especially important for banks that would not have enough room to use the additional provisions as effective equity. On April 20, 2020, CMF issued a circular (No. 2,250) that allowed banks to consider a proportion (15%) of the amount guaranteed by the Chilean State, CORFO, and FOGAPE to cover loans granted by banks as part of the voluntary provisions that make up the effective equity. The current regulation voids such treatment and these guarantees can be considered without any limits in the calculation of risk-weighted assets.
Related Links (in Spanish and English)
- Press Release
- Circular on Updated Chapter 12-1 (PDF)
- Updated Chapter 12-1 (PDF)
- Regulatory Report (PDF)
- CMF Regulations
Keywords: Americas, Chile, Banking, COVID-19, Credit Risk, Basel, Regulatory Capital, State Guarantee, FOGAPE, Risk-Weighted Assets, CMF
Previous ArticleFCA Guidance Proposes Next Stage of Support for Mortgage Borrowers
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)