List of measures to facilitate the flow of credits to businesses and households adopted by the Chilean Financial Market Commission (CMF). Measures in the context of the global Covid-19 coronavirus pandemic.
Regulatory treatment facilitating the possibility of postponing up to three instalments in the payment of mortgage loans
The Chilean Financial Market Commission decided to apply a regulatory exemption to the establishment of provisions associated with mortgage loans that have been deferred by banks. The purpose of this is to allow that instalments rescheduled by customers after the original maturity date of the loan are not treated as renegotiations for the constitution of provisions. This special treatment is directed to those debtors who were up to date with their obligations at the time the state of emergency was declared by the authority. The flexibility in constituting provisions will be granted for the rescheduling of up to three dividends to be added after the original loan termination date.
Facilities for banks to make credit terms for small to mid-size enterprises debtors (SME) more flexible by up to 6 months without this being considered a renegotiation
The Commission has made a regulatory flexibilization for banks to increase the term of SMEs and individuals’ consumer credits in installments to up to six months, without this being considered a renegotiation for provisioning purposes.
Possibility of using surplus mortgage collateral to guarantee loans to SMEs
The Commission will establish in the short term a regulatory amendment in order to allow the use of surplus mortgage collateral to secure loans to SMEs.
Extension of terms for the disposal of Goods Received in Payment
The Financial Market Commission exceptionally authorizes an extension of 18 months for banks to dispose of Goods Received in Payment. The purpose of this measure is to prevent entities from having to sell goods during economic contraction in which securities could be heavily punished in relation to periods of less uncertainty.
Treatment of the variation margin of derivatives
The Commission ordered an amendment to the treatment of the cash amount that banks must provide as collateral for the variation margin of bilaterally netted derivatives transactions. In periods of high exchange rate volatility, “margin calls” occur for derivative agreements held with banking institutions. If it is a foreign bank, the cash deposited in favor of the counterparty has a charge of capital of 100%, raising the cost of derivatives.
The amendment agreed by the CMF allows the derivative value to be compensated with the amount provided as a guarantee in favor of the counterparty. With this, there would be a significant reduction in the charge of capital associated with derivative agreements, thus encouraging their use precisely in periods of greater exchange rate volatility.
Regarding the aforementioned set of measures, the Chilean Financial Market Commission Council considers that these are temporary flexibilities that may be adopted provided they do not weaken the medium-term solvency and liquidity of the institutions. Notwithstanding the above, it is of the highest importance that banks maintain adequate risk management policies and establish cautious dividend distribution policies, considering the exposure and risks they face in this new situation. It is the responsibility of each entity’s corporate government to ensure that this occurs.
Capital standards for banking: Basilea III
The Commission will comply with the provisions of Law No. 21,130 that updates the banking legislation and by December 1 of this year will have issued all the Basel III regulations, following the calendar drawn up for this purpose, which provides for a gradual period of implementation until December 2024. The Commission’s Council states that they are conducting a revision of the implementation process of these standards, relying on the regulatory capacity to ease the graduality of the implementation of certain aspects. Given the current circumstances, the Council of the Commission will review the date on which the standards will be implemented in order to avoid exacerbating the negative effects of the current economic cycle, and would communicate its decision in the short term.
Authors: Francisco Javier Illanes, Rodrigo Sepúlveda and Juan Antonio Parodi.
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