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    APRA Explains Capital Treatment of a COVID Loan Scheme for Banks

    November 19, 2020

    APRA published a new frequently asked question (FAQ) for authorized deposit-taking institutions on the credit risk capital treatment of loans covered by the Coronavirus Australian Government Small and Medium Enterprise (SME) Guarantee Scheme. The Coronavirus SME Guarantee Scheme (both phases), established by the Commonwealth Government may be regarded as an eligible guarantee by the Australian Government for risk-weighting purposes.

    For both secured and unsecured lending, the uncovered portion of the exposure must be risk-weighted according to the risk-weight applicable to the original counterparty. In relation to the covered portion of the exposure:

    • Authorized deposit-taking institutions utilizing the standardized approach may apply a risk-weight appropriate to the government in accordance with APS 112 on Standardized Approach to Credit Risk
    • Authorized deposit-taking institutions utilizing the internal-ratings bases (IRB) approach may apply a risk-weight derived by using the relevant substitution approach in accordance with the requirements specified in APS 113 on IRB approach to credit risk


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    Keywords: Asia Pacific, Australia, Banking, COVID-19, Credit Risk, FAQ, Basel, Regulatory Capital, APS 112, APS 113, Loan Guarantee, IRB Approach, Standardized Approach, APRA

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