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    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    July 09, 2020

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis. It announced an extension of its temporary capital treatment for bank loans with repayment deferrals and temporarily adjusted the capital treatment of loans where terms are modified or renegotiated. APRA also published a letter to the authorized deposit-taking institutions providing an update on the regulatory approach to loans subject to repayment deferrals. The letter advises institutions that this regulatory approach will be extended to cover a maximum period of 10 months from the start of a repayment deferral, or until March 31, 2021, whichever comes first. Additionally, APRA published aggregated data from the 20 largest deposit-taking institutions in Australia to provide more transparency on temporary loan repayment deferrals. APRA will continue to update this information on a monthly basis.

    Where an authorized deposit-taking institution restructures an affected borrower’s facilities before March 31, 2021 with a view to putting the borrower on a sustainable financial footing, the loan may continue to be regarded as a performing loan for capital and regulatory reporting purposes. For new loan repayment deferrals that authorized deposit-taking institutions provide for the first time after September 30, 2020, the temporary capital treatment may be applied until March 31, 2021. While authorized deposit-taking institutions are free to choose to extend repayment deferrals beyond these dates, they may not apply the temporary capital treatment after these dates. For repayment deferrals offered after September 30, 2020 (including extensions to existing deferral arrangements), the temporary capital treatment may only be applied where the authorized deposit-taking institution has undertaken an appropriate credit assessment of the borrower and is satisfied that the borrower has a reasonable prospect of being able to repay the loan (on original or restructured terms) when the repayment deferral period ends.

    APRA expects authorized deposit-taking institutions to have a comprehensive plan that demonstrates how they will systematically work through the large volume of impacted customers and avoid operational constraints as deferral periods come to an end. This plan should be approved by the relevant Accountable Person and provided to APRA and the Australian Securities and Investments Commission (ASIC) by the end of August 2020. To maintain transparency, APRA will also require authorized deposit-taking institutions to provide regular disclosures on the status of their deferred, restructured, and impaired loan portfolios. APRA also plans to develop additional reporting obligations in relation to these exposures, to monitor their volume and performance. Meanwhile, the Financial Instruments expected loss provisioning under AASB 9 continues to apply to authorized deposit-taking institutions, including for loans with repayment deferrals and restructured loans. Authorized deposit-taking institutions should continue to monitor borrowers closely and undertake regular credit risk assessments and should on a best endeavor basis continue to grade and re-rate borrowers through the period ahead.


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    Keywords: Asia Pacific, Australia, Banking, COVID-19, Loan Moratorium, Credit Risk, Regulatory Capital, Basel, Reporting, Disclosures, AASB 9, ECL, APRA

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