BoM Issues Guidance on Capital Treatment of IFRS 9 Provisions
BoM published guidance on transitional arrangements for regulatory capital treatment of IFRS 9 provisions for expected credit losses. The transitional arrangements will allow banks and non-bank deposit-taking institutions (financial institutions) to add back a portion of their IFRS 9 provisions to the regulatory capital. These arrangements come into effect on January 13, 2021 and will phase out over a four-year period, with the transition factor turning zero from January 01, 2025 onward. A financial institution shall inform BoM about its decision to elect to apply the transitional arrangements no later than February 15, 2021. The introduction of these transitional arrangements is intended to alleviate the impact of the COVID-19 pandemic on the provisioning levels of financial institutions.
The guidance stipulates that a financial institutions electing to apply the transitional arrangements will be required to make this disclosure this in the audited financial statements. A financial institution electing to apply the transitional arrangements shall refrain from paying dividends and making other transfers from profit until the end of the transitional period or until it opts out of the transitional arrangements. A financial institution shall add back a proportion of Stage 1 and Stage 2 provisions under IFRS 9 to its tier 1 capital. Banks shall add the provisions back to common equity tier 1 (CET1) capital and non-bank deposit-taking institutions shall add the provisions back to the tier 1 core capital. The amount of Stage 1 and Stage 2 provisions to be added back to the CET1 capital or the tier 1 core capital shall be calculated according to the formula set out in the guidance. Annex 1 to the guidance contains examples of calculation for the transitional arrangements.
As per the guidance, Stage 1 and Stage 2 provisions that have been added back to the CET1 capital or the tier 1 core capital should not be included under tier 2 capital. Only the amount of Stage 1 and Stage 2 provisions not added back to the CET1 capital or the tier 1 core capital may be included in tier 2 capital, subject to the guidelines on scope of application of Basel III and the eligible capital and guidelines on capital adequacy ratio for non-bank deposit taking institutions. Financial institutions shall report the amount of provisions added back to the regulatory capital as well as the regulatory capital without applying the transitional arrangements. The reports shall be submitted on a quarterly basis, along with the Returns on Statement of Capital Adequacy Calculation for banks and with the Returns on capital adequacy calculation for non-bank deposit taking institutions, as per the reporting template provided in Annex 2 for banks and in Annex 3 for non-bank deposit-taking institutions.
During the transitional period, a financial institution may elect to opt out of the transitional arrangements but may not elect to apply the transitional arrangements again after opting out of it. A financial institution opting out of the transitional arrangements shall immediately inform BoM of its decision. These transitional arrangements are in line with the BCBS guidance from March 2017 and April 2020.
Related Links
Effective Date: January 13, 2021
Keywords: Middle East and Africa, Mauritius, Banking, Accounting, ECL, Regulatory Capital, Transitional Arrangements, COVID-19, IFRS 9, Basel, BCBS, BoM
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.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Previous Article
US Treasury Issues Rule on Revisions to Paycheck Protection ProgramRelated Articles
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.
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.
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.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
ISSB Standards May Become Effective from January 2024
The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.
