OSFI announced that it is gradually phasing out the special capital treatment of loan and insurance premium payment deferrals that was provided to banks and insurers at the start of the COVID-19 pandemic. The OSFI decision to discontinue the special regulatory capital treatment of deferrals, which permit loan and insurance premium payment deferrals to be treated as performing, reflects the temporary nature of these measures and will ensure that reporting requirements remain accurate in reflecting credit risk. OSFI has published additional details regarding this in a letter that was issued to federally regulated deposit-taking institutions and in the updated frequently asked questions (FAQs) on pandemic-related regulatory measures.
OSFI is announcing the following updates to the special capital treatment of loans subject to payment deferrals:
- Loans granted payment deferrals before August 31 will continue to be treated as performing loans under the Capital Adequacy Requirements (CAR) Guideline for the duration of the deferral, up to a maximum of six calendar months from the effective date of the deferral.
- Loans granted new payment deferrals after August 30 and on or before September 30 will be treated as performing loans under the CAR Guideline for the duration of the deferral, up to a maximum of three calendar months from the approval date of the deferral.
- Loans granted payment deferrals with approval dates after September 30, 2020 will not be eligible for the special capital treatment.
This change supports the accurate measurement of the capital needs of deposit-taking institutions and the long-term integrity of the OSFI capital framework. While the special capital treatment and regulatory flexibility related to payment deferrals was warranted at the onset of COVID-19, as both lenders and borrowers adapted to the extraordinary circumstances and unprecedented disruptions related to the pandemic, banks are now in a better position to employ their business-as-usual alternatives to support troubled borrowers. Thus, the special capital treatment for loans with payment deferrals is no longer warranted and is being phased out through the changes being announced.
Keywords: Americas, Canada, Banking, COVID-19, Payment Deferrals, Regulatory Capital, Basel, Credit Risk, FAQ, OSFI
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