The Prudential Authority of SARB has announced regulatory relief measures and published guidance for banks to ease the impact of COVID-19 pandemic. The Prudential Authority has issued Directives on temporary measures to aid compliance with liquidity coverage ratio or LCR (D1/2020), to provide temporary capital relief (D2/2020), and on treatment of restructured credit exposures (D3/2020). The Prudential Authority also issued guidance notes on matters related to IFRS 9 (G3/2020) and on recommendations for distribution of dividends on ordinary shares and payment of cash bonuses to executive officers and material risk-takers (G4/2020).
The regulatory relief measures have been announced in three areas, namely capital relief on restructured loans that were in good standing before the COVID-19 crisis, a lower liquidity coverage ratio (LCR), and lower capital requirements. As per the announcements, the Prudential Authority:
- Temporarily amending Directive 7 of 2015 on Restructured Exposures, which means that for the duration of the crisis, loans restructured as a result of the impact of COVID-19 will not attract a higher capital charge. This amendment covers loans to households, small and medium-size businesses, and corporates and for specialized lending.
- Lowering LCR requirement from 100% to 80%, with effect from April 01, 2020—for the duration of the crisis.
- Lowering the Pillar 2A capital buffer, which is set at 1% of risk-weighted assets, to zero. The Prudential Authority has also provided clear criteria that provide for banks to dip into their capital conservation buffer, which is set at 2.5% of the risk-weighted assets.
- Planning to announce a timetable according to which banks can restore these buffers once the COVID-19 crisis has abated. This timetable will be sensitive to the need to balance the rebuilding of buffers to ensure a resilient banking system, with the negative effect that such measures could have on credit extension and economic growth.
- Providing guidance to the banking industry on how IFRS 9 could be implemented during this period of volatility and stress. The guidance outlines the expectations of the Prudential Authority when the requirements of IFRS 9 are applied to payment holidays and other relief measures, including government guarantees and other subsidies provided as a result of COVID-19.
- Issuing a guidance note advising banks not to distribute discretionary ordinary dividends during this period. Similarly, bonuses for senior executives should also be put on hold during this period.
Keywords: Middle East and Africa, South Africa, Banking, COVID-19, LCR, Capital Requirements, Capital Buffer, IFRS 9, Dividend Distribution, Pillar 21, Credit Risk, SARB
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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