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
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.
FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.