On 1 October 2020, BNM released the Exposure Draft on Transitional Arrangements for Regulatory Capital Treatment of Accounting Provisions (the “Exposure Draft”), applicable to prescribed Development Finance Institutions (“DFIs”). DFIs which elect to apply the transitional arrangements are allowed to add back a portion of the Stage 1 and Stage 2 provisions for expected credit losses to Tier 1 Capital over a four-year period from financial year beginning 2020 or a three-year period from financial year beginning 2021.
The proposals are intended to be consistent with the guidance issued by the Basel Committee of Banking Supervision on “Regulatory treatment of accounting provisions — interim approach and transitional arrangement” (March 2017), and “Measures to reflect the impact of Covid-19” (April 2020).
The Exposure Draft is to be read together with the policy document on Capital Framework for Development Financial Institutions. Feedback on the Exposure Draft must be submitted to BNM by 30 October 2020.