BCB announced a measure to temporarily reduce the capital requirement for credit operations aimed at small and medium-size companies. Additionally, the National Monetary Council (CMN) enabled financial institutions to maintain renegotiated operations in the risk classification they were in February 2020, before the crisis worsened, reducing the need for a provision for losses. These measures are intended to support the maintenance of the supply of credit and minimize the impact of COVID-19 outbreak on the economy.
Reduced capital requirements
BCB reduced the capital requirement for credit operations for small and medium-size companies. With this change, the Risk Weighting Factor (FPR) applicable to credit operations with small and medium-size companies reduces from 100% to 85%. The change will be applied only to the new credit operations or restructured operations with benefit to the borrower and will be limited to the period from March 16, 2020 to December 31, 2020. After December 31, 2020, new operations will receive the previous treatment; however, operations entered into or restructured during this limited period will remain with the same capital requirement.
Reclassification of loans
CMN allowed financial institutions to reclassify renegotiated operations from March 01 to September 30, 2020 to the risk level they were rated in February 2020. The objective of the measure, which is effective immediately, is to avoid an increase in the volume of provision for losses related to credits renegotiated with economically viable companies. The increase in the provision impacts the supply of credit and, consequently, consumption and income, which further aggravates the economic and financial effects resulting from the fight against COVID-19. This is because provisioning expenses reduce the reference equity necessary to face the risk of the operations undertaken, thus limiting the ability of an institution to take on new risks and, consequently, grant new loans. The measure does not apply to those with a delay of 15 days or more on February 29, 2020 as well as operations with evidence that the counterparty will not be able to honor the obligation under the conditions agreed upon in the renegotiation.
Related Links (in Portuguese)
- Press Release
- Notification on Reduced Capital Requirements
- Notification on Reclassification of Loans
Keywords: Americas, Brazil, Banking, COVID-19, Reclassification of Loans, SME, CMN, Regulatory Capital, Credit Risk, BCB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleRBNZ Finds ANZ Incompliant with Internal Model Capital Calculations
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.