The Basel Committee on Banking Supervision released technical guidance setting out additional measures to alleviate the impact of Covid-19 on the global banking system.
- Expected credit loss accounting: The Basel Committee notes that regarding the SICR assessment, relief measures to respond to the adverse economic impact of Covid-19 such as public guarantees or payment moratoriums, granted either by public authorities, or by banks on a voluntary basis, should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement.
- Expected credit loss accounting transitional arrangements: The Basel committee is allowing for the implementation of several transitional arrangements including applying exiting transitional arrangements even if those were not implemented initially. Additionally, a 2 year period comprising the years 2020 and 2021, jurisdictions may allow banks to add-back up to 100% of the transitional adjustment amount to CET1. The “add-back” amount must then be phased-out on a straight line basis over the subsequent 3 years.
- Capital treatment of non-performing loans, loans subject to moratorium, or past due: The Basel Committee also provided treatment for a loan that might otherwise be considered troubled or in default noting that jurisdictions can apply relief criterion for payment moratorium periods (public or granted by banks on a voluntary basis) relating to the Covid-19 outbreak such that they can be excluded by banks from the counting of days past due. Another criterion used is whether a bank considers that the borrower is unlikely to pay its credit obligations. The Committee has agreed that this assessment should be based on whether the borrower is unlikely be able to repay the rescheduled payments.
- Non-centrally cleared derivatives: The Committee and the International Organization of Securities Commissions have agreed to defer the final two implementation phases of the framework for margin requirements for non-centrally cleared derivatives by one year.