BNM Publishes Measures on Capital Treatment of Credit Loss Provisions
BNM published policy documents that set out requirements on the transitional arrangements for regulatory capital treatment of accounting provisions for the expected credit losses (ECLs). The policy document on transitional arrangements is applicable to development financial institutions, while the two policy documents on capital adequacy framework are applicable to conventional as well as Islamic banks. Part G of both the policy documents on capital adequacy framework sets out requirements on the transitional arrangements for banking 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 ECLs to Tier 1 capital over a four year period from financial year beginning 2020 or a three-year period from financial year beginning 2021. The policy documents came into effect on December 09, 2020.
The updated capital adequacy frameworks, in particular, are applicable to licensed banks, investment banks, Islamic banks, banks carrying on Islamic banking business, and financial holding companies. The transitional arrangements in the updated policy are consistent with the guidance issued by BCBS on the interim approach and transitional arrangement on regulatory treatment of accounting provisions (published in March 2017) and the measures to ease 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. Once made, this election is irrevocable throughout the transition period. An institution is allowed to add back the amount of loss allowance measured at an amount equal to 12-month and lifetime ECLs to the extent they are ascribed to non-credit-impaired exposures to Tier 1 capital. A development financial institution shall submit periodic reports on its capital adequacy ratios using the reporting templates provided by BNM. 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
Related Links
- Press Release
- Framework for Conventional Banks (PDF)
- Framework for Islamic Banks (PDF)
- Transitional Arrangements for Development Institutions (PDF)
Effective Date: December 09, 2020
Keywords: Asia Pacific, Malaysia, Banking, ECL, Regulatory Capital, Transitional Arrangements, Credit Risk, Islamic Banking, COVID-19, BNM
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
Previous Article
FSB List of Global Systemically Important Banks Remains UnchangedRelated Articles
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
