CMF is consulting on supplementary instructions in Chapter B-1 of the Compendium of Accounting Standards. Chapter B-1 of the Compendium of Accounting Standards defines the criteria and guidelines for calculating provisions for credit risk. The instructions allow for the use of excess mortgage guarantees from the portfolio's standard provisioning model as a mitigating factor in the standard business group model. The consultation process will be open until April 24, 2020. Additionally, CMF announced transitional measures for the treatment of provisions to facilitate the flow of credit to households and businesses, in an effort to mitigate the impact of the shock on the economy due to the spread of COVID-19.
Consultation on Supplementary Instructions
The standard model for calculating provisions of the commercial group portfolio came into force in June 2019. It constitutes a prudential floor for internal methods that have not been expressly approved by CMF, as had been previously done with the standard model for the mortgage portfolio. Its design was driven by a balance between risk sensitivity and simplicity, so it did not consider the cross use of mortgage guarantees. The impact of such exclusion versus the recalibration costs for the different portfolios was then estimated to be low, especially in view of the imminent approval of amendments to the General Banking Act which would change the methodology for classifying credit portfolios under the Basel III framework.
On March 23, 2020, CMF announced a package of measures to facilitate the flow of credit to businesses and households, including the use of excess mortgage guarantees to safeguard commercial loans to small and medium enterprises. This measure aims to facilitate the flow of credit to businesses and mitigate the effects of the COVID-19 pandemic on the financial system. The instructions in consultation satisfies the commitment made and it is expected to be accompanied by similar efforts from the banking industry.
The special treatment provided by CMF avoids the inclusion of further provisions due to non-payments of the installments associated with the granted easements. This will facilitate the rescheduling conditions offered by banks to their customers. The exceptional treatment will be in force until July 31, 2020 and considers freezing provisions in the following situations:
- Mortgage Loans—The maximum grace or installments deferment period will be six months for debtors who are up to date or in arrears for no more than 30 days within the indicated validity period.
- Commercial Loans—The maximum grace or deferment period will be four months for debtors who are up to date or in arrears for no more than 30 days or one installment within the indicated validity period.
- Consumer Loans—The maximum grace or deferment period will be three months for debtors who are up to date or in arrears for no more than 30 days within the indicated validity period.
Additionally, CMF adopted measures following permanent monitoring of the effects of COVID-19 and the impact it may have on its supervised entities.
- Operational continuity plans—CMF has requested its supervised entities, including banks and support companies of banking activities; insurance companies; fund managers; securities and product intermediaries; and financial market infrastructures, to apply their contingency plans in a timely manner. Said plans include the deployment of business continuity measures necessary to guarantee operational continuity pursuant to their regulatory obligations and the proper service of its customers, depositors, investors, policyholders, or participants.
- Disclosure of information to the market—CMF has required issuers of publicly offered securities to disclose as soon as possible any significant information on financial and operational effects that the outbreak of COVID-19 could mean, including measures taken to mitigate such effects. This is pursuant to transparency requirements imposed on them by the Securities Market Law and CMF regulations.
- Third-party fund administrators and securities intermediaries—These entities were instructed to continue applying risk management frameworks required by the regulations in force. Therefore, they can timely meet the requirements of investors or participants in the funds under their management.
- Measures related to CMF operation—Under the operational continuity plan of CMF, appropriate measures are in place to ensure the continuity of its functions and the services it provides to citizens and financial actors.
- Press Release on Consultation
- Consultation Page (in Spanish)
- Press Release on Transitional Measures
- Press Release on Measures in Response to COVID-19
Comment Due Date: April 24, 2020
Keywords: Americas, Chile, Banking, COVID-19, Basel III, Credit Risk, Supplemental Instructions, Mortgage, CMF
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