Regulators offer capital break on bank loans due to pandemic

LONDON (Reuters) - A global committee of banking regulators has offered lenders breathing space from topping up capital buffers to cover losses on loans to borrowers struggling to stay afloat in the coronavirus pandemic.

“These measures support the provision of lending by banks to the real economy and provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities,” the Basel Committee of banking regulators said in a statement on Friday.

Basel said it had agreed to amend its transitional arrangements for deciding how much capital must be set aside to cover anticipated losses on loans.

It said this was in light of governments offering loan repayment holidays during a crisis.

Normally, banks are required to step up provisioning when repayments are missed, but Basel said this did not have to be the case with a temporary payment holiday introduced by governments.

Tougher accounting rules for provisioning were agreed after the financial crisis a decade ago and are still being phased in under transitional arrangements.

A global loan loss rule was introduced in 2018, with the United States introducing its own in January.

Basel set out several ways to offer banks breathing space from having to provision in full for expected losses on loans hit by the epidemic, mainly by returning to higher levels of relief when IFRS 9 accounting rules were first being introduced.

“The adjustments will provide jurisdictions with greater flexibility in deciding whether and how to phase in the impact of expected credit losses on regulatory capital,” the committee said in a statement on Friday.

Regulators could allow banks to return to the earlier, higher levels of relief from full provisioning for 2020 and 2021, Basel said.

This “add back” amount of relief would then be phased out over the following three years, Basel said.

The United States has already unveiled a similar approach for its banks.

Separately, Basel and the International Organization of Securities Commissions (IOSCO) said they were deferring the final phase of new rules that require “initial” margin on uncleared swaps transactions at the outset of a trade.

The final phase was due to take place in two legs, the first in September, the second a year later, but both dates have been pushed back a year to September 2021 and September 2022.

“This will enable the hundreds of buy- and sell-side firms that would have come into scope to focus their resources on ensuring business continuity, managing risk and supporting their customers,” said Scott O’Malia, chief executive of the International Swaps and Derivatives Association.

Reporting by Huw Jones; Editing by Hugh Lawson and Mark Potter