CMF Consults on Methodology to Calculate Consumer Loan Provisions
The Financial Market Commission (CMF) is consulting on a standardized methodology to calculate the provisions for consumer loans and contingent credits granted by banking institutions established in Chile. CMF also published a regulatory report, presentation, and frequently asked questions (FAQs) related to the draft rules. The consultation is open for comments until October 21, 2022.
The regulation under the consultation aims to introduce a standard method of provisioning for consumer loans in Chapter B-1 of the Compendium of Accounting Standards for Banks. As for the other portfolios, the regulation establishes matrices to determine the probability of default (PD) and the loss-given default (LGD) used to calculate the level of provisions. This methodology follows the best international practices and is consistent with the rest of the regulatory provisions related to the determination of capital requirements for credit risk. It also considers risk factors allowing a timely recognition of credit risk as well as generating incentives to manage it prudently and strengthen the stability of the banking system. Considering the size of the consumer portfolio as of December 2021 and if the consumer behavior does not change significantly, the new methodology would mean an increase of nearly USD 1 billion in provisions, which can be offset with other voluntary provisions available to banks. Therefore, this methodology would not have a significant impact on the capital adequacy levels of banks, which have sufficient buffers to absorb it.
Related Links (in English and Spanish)
Keywords: Americas, Chile, Banking, Lending, Credit Risk, Consumer Loans, Probability of Default, Loss Given Default, Basel, Regulatory Capital, CMF
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
