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    FSC Taiwan Announces Relief Measures in Response to COVID-19 Pandemic

    July 14, 2020

    FSC Taiwan has announced certain developments in response to the COVID-19 pandemic. These developments include delayed implementation of the final Basel III rules and postponement of internal capital buffer requirements for banks. FSC Taiwan also asked banks to take steps for corporate and individual borrowers that have been affected by the pandemic. To understand the risk-bearing capacity and capital suitability of domestic banks under COVID-19 epidemic, FSC Taiwan is requiring 36 domestic banks to report in advance the results of the second pillar stress test in 2020. The test scenario should include the impact of the epidemic on the financial market and economic environment.

    In line with the recent action by BCBS to respond to the COVID-19 pandemic, FSC Taiwan recently adjusted the timetable for implementation of the Basel III final rule. FSC Taiwan has set a target of 2023, for the implementation of the final Basel III rules. With regard to the real estate exposures on the basis of the Loan-to-Value Ratio under the standardized approach for credit risk, the tentative implementation date was delayed by one year, to June 2021. The requirements of banks’ internal capital buffer and the business crisis contingency plans of the domestic systemically important banks (D-SIBs) were also postponed by one year. To ensure that banks are on the same basis in measuring the expected credit losses (ECLs) of relief loans under the IFRS 9, FSC Taiwan is working to collect opinions from banks and will soon issue frequently asked questions (FAQs) on the classification and ECL measurement of relief loans.

    In addition to granting relief loans to corporate borrowers, as called for under the economic stimulus programs of central government agencies, FSC Taiwan is pushing for banks to take the following measures for corporate and individual borrowers affected by COVID-19:

    • Corporate loans—FSC Taiwan is overseeing an effort by the Bankers Association of the Republic of China (BAROC) to prompt banks to step up the provision of relief loans. In particular, BAROC is pushing for its member institutions to defer repayment of loan principal until the end of December 2021.
    • Personal loans—Individuals having trouble with repayment of loans due to COVID-19 are allowed to apply for three to six months of deferrals of principal or interest payments. Default penalties and default interest may be waived during the deferral period. Until the obligation becomes due, it will not be treated as a bad debt and an instance of late payment will not be included in the debtor's credit record. Since the application deadline will end on July 31, 2020, FSC Taiwan coordinated with banks on May 12, 2020 to extend the debt workout mechanism for credit card debts and personal loans until December 31, 2020.
    • Principles regarding fair and reasonable fees for relief loans—On May 12, 2020, FSC convened a meeting to explain to come up with principles regarding fair and reasonable service charges for relief loans. 

    FSC stated that the stress test showed that in a, stressful situation, the increase in possible losses will put a certain degree of pressure on a bank's profit, but it is still within a bank's tolerance. At present, the overall provision for bad debts of domestic banks is still maintained at a high level and capital adequacy is still stable. Compared with the previous supervisory stress test set by FSC in a unified context, the current stress test is handled by the bank’s own scenarios. The test scenarios are slightly different due to the impact of each bank's expectations on the future economic and market risk environment. According to the results of this stress test, the 36 domestic banks used end of 2019 as the base date. According to the test results, the overall average capital adequacy ratio and the leverage ratio of banks after the implementation of the relief measures are lower than before the implementation of the relief measures. 

     

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    Keywords: Asia Pacific, Taiwan, Banking, COVID-19, Regulatory Capital, Credit Risk, Basel, Stress Testing, Pillar 2, ECL, IFRS 9, FSC Taiwan

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