APRA issued a letter to all regulated entities about the Economic and Financial Statistics (EFS) guidance, which applies to loans and finance leases that have been granted relief, such as a repayment holiday or deferral, as part of a COVID-19 support package. The key topics covered in this guidance on reporting issues include loans and finance leases past due and impaired, provisions, interest rates, and reconciliation of stocks and flows. APRA also updated the frequently asked questions (FAQs) related to EFS.
Loans and Finance Leases Past Due and Impaired
In line with the recent guidance from APRA, loans that have been granted relief as part of a COVID-19 support package should be excluded from the reporting of loans and finance leases past due and impaired. Similarly, these loans need not be regarded as restructured and should not be reported as internal refinancing commitments.
Reporting entities must continue to provision for loans and finance leases that have been granted relief under the relevant accounting standards. The FAQs on EFS set out how entities should report expected credit loss provisions in the EFS collection (FAQ No. 97).
Where a loan has been granted relief as part of a COVID-19 support package, interest charged to a customer (but not received) should be added to the loan balance and included in credit outstanding. Capitalization will depend on the terms of the contract. Interest charged should be reported at item 7.6 on ARF 742.0A/B and item 5.6 on ARF 743.0. For the purposes of the EFS collection, the interest rate is the contractual interest rate to be paid by the borrower. Where a loan has been granted relief as part of a COVID-19 support package, the contractual interest rate for the loan should be included in all weighted-average interest rate calculations. Loans temporarily not being charged interest should be excluded from all weighted average interest rate calculations.
Stocks and Flows Reconciliation
Where a loan has been granted relief as part of a COVID-19 support package, institutions are required to report scheduled repayments regardless of whether or not a payment is received. In case of missed repayments or deferred repayments, report the amount by which scheduled repayments exceed actual repayments in repayment deficiencies at item 7.10 on Reporting Form ARF 742.0A/B Business Credit Stocks, Flows and Interest Rates (Standard/Reduced) or item 5.10 on Reporting Form ARF 743.0 Housing Finance. Also, where a borrower’s available redraw is used to cover a missed repayment or deferred repayment, this should not be reported as a repayment deficiency. Instead, report the amount that is drawn from available redraw balances to cover the repayment in other draw-downs at item 7.3 on ARF 742.0A/B or item 5.3 on ARF 743.0. A corresponding decrease in available redraw should be reported at item 6.3 on ARF 743.0.
Keywords: Asia Pacific, Australia, Banking, Securities, COVID-19, Statistics, EFS, FAQ, ECL, Credit Risk, Loan Moratorium, Reporting, APRA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleRBNZ Announces Initiatives in Response to COVID-19 Pandemic
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.