BCB Announces Measures for SMEs in Response to COVID-19 Pandemic
BCB President, Roberto Campos Neto, announced measures to address the impact of COVID-19 pandemic. These measures focus on directing credit and liquidity to small and medium size companies. The measures include reduction in capital requirement for smaller institutions, working capital program for business preservation, regulation on purchase of private securities by BCB, deduction on reserve requirement on savings deposits, reduction in Risk Weighting Factor in Time Deposit with Special Guarantee (DPGE), and use of property as collateral for more than one loan.
The measures announced by BCB include the following:
- Reduction in capital requirement for smaller institutions—The capital requirement for financial institutions in the regulatory Segment 5 (S5) has been reduced. The expected impact of the measure includes potential liquidity increase of BRL 1.3 billion, which may raise the provision of credit by up to BRL 16.5 billion. The re-establishment of the original capital requirement will be gradual, starting in May 2021 and ending in May 2022 (Resolution 4.813).
- Working Capital Program for Business Preservation—This measure complements the programs already announced by the government with regard to working capital and providing credit for micro, small, and medium-size companies. The loans granted under the program will have a minimum term of three years, with a grace period of six months. The credit risk of these operations will be fully assumed by the financial institutions. In July 2020, the National Monetary Council (CMN) also decided to regulate the working capital program (Resolution 4.838).
- Purchase of private securities—The regulation of the purchase of private securities by BCB in the secondary market was announced. The purpose is to provide liquidity to the private credit market, allowing the sector to function better.
- Deduction on reserve requirement on savings deposits—For up three years, financial institutions are allowed to deduct up to 30% of their reserve requirements on savings deposits, provided that the deducted amount is used in credit operations for micro and small companies. Under the same conditions, the deduction may also be applied to the balance of interbank transfers made by cooperative banks to individual cooperatives. Financial institutions must provide 5% of the loans to micro and small companies by August 10, 2020, with another 5% of loans by September 08, 2020. If a financial institution fails to comply with the measure, it will not receive remuneration on the 30% on its savings-reserve balance until the end of 2020 (Circular No. 4.033).
- Risk-Weighting Factor—The Risk Weighting Factor in DPGE has been reduced from 50% to 35%. For this, the depositor must be an institution associated with the Credit Guarantee Fund (Circular No. 4.030).
- Real Estate as collateral for more than one loan—The measure allows the use of the same real estate as collateral for additional credit operations with the original creditors, at their own discretion. The objective of the measure is to stimulate the credit market and preserve financial stability. In July 2020, CMN decided to regulate this measure (Resolution 4.837).
Related Links (in Portuguese)
- Press Release on Relief Measures
- Press Release on Regulation of Certain Measures
- Resolution 4.813
- Resolution 4.838
- Resolution 4.837
- Circular 4.033
- Circular 4.030
- Presentation on Relief Measures (PDF)
- Overview of COVID-19 Measures (in English)
Keywords: Americas, Brazil, Banking, COVID-19, Credit Risk, Regulatory Capital, Collateral, SME, BCB
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.
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
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.