The US regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. These agencies are Conference of State Bank Supervisors, CFPB, FDIC, FED, NCUA, and OCC. In addition, FASB stated that this guidance, by the US Agencies, on the approach to the accounting for loan modifications, in light of the economic impact of the coronavirus pandemic, was developed in consultation with the FASB staff. FASB concurs with this approach and stands ready to assist stakeholders with any questions they may have during this time.
The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings. The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs. The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers and lead to improved loan performance and reduced credit risk. The statement reminds institutions that not all modifications of loan terms result in a troubled debt restructuring.
Short-term modifications made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief are not troubled debt restructurings. This includes short-term—for example, six months—modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The agencies' examiners will exercise judgment in reviewing loan modifications, including troubled debt restructurings, and will not automatically adversely risk-rate credits that are affected, including those considered troubled debt restructurings. Regardless of whether modifications are considered troubled debt restructurings or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.
With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. Payment date of a loan is governed by the due date stipulated in the legal loan documents. If a financial institution agrees to a payment deferral, this may result in no contractual payments being past due and these loans are not considered past due during the period of the deferral. Institutions are reminded that loans that have been restructured as described under this statement will continue to be eligible as collateral at the FED discount window based on the usual criteria.
Keywords: Americas, US, Banking, Accounting, CECL, Credit Risk, NPLs, Troubled Debt Restructuring, COVID 19, FASB, US Agencies
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