BNM published proposals that set out transitional arrangements for regulatory capital treatment of accounting provisions for banking institutions (including Islamic banking institutions) and development financial institutions. Institutions that elect to apply the transitional arrangements are allowed to add back a portion of the Stage 1 and Stage 2 provisions for expected credit losses (ECLs) to the common equity tier 1 capital over a four-year period from financial year beginning 2020 or a three-year period from financial year beginning 2021. Comment period on the proposal for banking institutions ends on October 23, 2020 whereas comment period on the proposal for development financial institutions ends on October 30, 2020.
The published proposals are consistent with the BCBS guidance on interim approach and transitional arrangement on regulatory treatment of accounting provisions (published in March 2017) and the measures to reflect the impact of COVID-19 outbreak (published in April 2020). An institution (be it a banking institution or a development financial institution) shall make a one-time election on whether or not to apply the transitional arrangements no later than December 01, 2021. Once made, this election is irrevocable throughout the transition period. In case an institution elects to apply the transitional arrangements, the institution shall notify BNM in writing at least one month before the transitional arrangements is applied. In such cases, an institution is required to complete certain reporting forms. Banking institutions shall complete either form “Capital Adequacy Framework (Capital Components)” or “Capital Adequacy Framework for Islamic Banks (Capital Components)” based on requirements computed in accordance with the transitional arrangements. Development financial institutions shall complete the reporting form “Capital Framework for Development Financial Institutions” based on requirements computed in accordance with the transitional arrangements. An institution applying the transitional arrangements is required to disclose the following:
- Description of the transitional arrangements, including the financial year where the transitional arrangements is first applied and the duration of application
- Comparison of the capital ratios computed in accordance with the transitional arrangements as well as the capital ratios, in case the transitional arrangements had not been applied
Additionally, BNM recently launched a survey to obtain feedback from individuals and SMEs that applied for the targeted repayment assistance during these tough times. The banking industry has been actively reaching out to borrowers in various ways. BNM, together with the banking industry, conducted more than 150 engagement sessions. These include repayment assistance campaigns across the country and direct engagements with various stakeholder groups, including SME associations. To date, about 500,000 applications for repayment assistance have been received, with an approval rate of 98%. For applications that are still being processed, banks have provided their commitment to inform borrowers of the application results as soon as possible. BNM will closely monitor banks’ practices in this regard. BNM assured that the banking sector remains committed to help households and businesses that need assistance after the automatic moratorium ended on September 30, 2020.
- Notification for Banking Institutions
- Transitional Arrangements for Banking Institutions (PDF)
- Notification for Development Financial Institutions
- Transitional Arrangements for Development Institutions (PDF)
- Notification on Online Survey
- Notification on Transition to Repayment Assistance
Comment Due Date: October 23, 2020/October 30, 2020
Keywords: Asia Pacific, Malaysia, Banking, ECL, Regulatory Capital, Transitional Arrangements, Credit Risk, Islamic Banking, COVID-19, Loan Moratorium, BNM
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleESAs Assess Risks to Financial Sector After COVID-19 Outbreak
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).