FSC Taiwan Extends Payment Deferrals, Announces Stress Tests for Banks
FSC Taiwan extended the timeline for COVID-19-related payment deferrals from December 31, 2020 to June 2021. The relief measures apply to home loans, auto loans, unsecured consumer loans, and credit card debt. In a separate statement, FSC Taiwan announced that 36 domestic banks will be required to conduct the regulatory stress tests in 2021. This round of domestic bank stress tests will adopt both mild and severe scenarios. This round of stress tests will, for the first time, test capital adequacy under operational risk stress scenarios (both mild and severe), which assume that a bank is subject to an enforcement action and has been required to increase its operational risk capital.
The stress tests will be based on financial reports’ capital adequacy data of the end of 2020. Among others, the stress tests will be conducted to understand how the financial resilience of domestic banks will be affected by low interest rates and the continuing impact of COVID-19. By employing consistent stress test scenarios, banks will calculate the degree to which capital adequacy ratios and leverage ratios have changed. The overall stress scenario will measure whether banks have sufficient risk-bearing capacity to withstand:
- Increased losses resulting from a number of stress factors such as falling economic growth rates in Taiwan, the US, the eurozone, mainland China, and Japan; rising domestic unemployment; and declining real estate prices, which result in increased credit risk and sharper volatility on bond, stock, exchange, and commodity markets, which in turn cause increased losses.
- Impact on earnings, caused by a narrowing in net interest rate spreads and a decline in fee incomes.
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Keywords: Asia Pacific, Taiwan, Banking, Stress Testing, COVID-19, Credit Risk, Payment Deferrals, Operational Risk, Regulatory Capital, Basel, FSC Taiwan
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