The central bank has approved a temporary regulatory relief measure on the capital treatment of banks’ provisioning under the Philippine Financial Reporting Standard (PFRS) 9 by allowing an “add-back” factor until 2023.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier in a memo she signed on October 19 said the temporary relief measure on the provisioning requirements will allow an add-back increase of 100 percent for 2022 and 50 percent for 2023.
Fonacier said all covered BSP-supervised financial institutions (BSFIs) will be allowed to add-back increase in “Stage 1” and “Stage 2” provisioning requirements. These are “booked under allowance for credit losses from end-December 2019 to Common Equity Tier 1 (CET 1) capital over a period of two years starting January 1, 2022 reporting period, subject to a declining addback factor,” she said in Memorandum Order No. M-2021-055.
Fonacier said the lingering COVID-19 pandemic has prompted the BSP to approve a resolution last October 14 for the adoption of temporary regulatory relief on the capital treatment of provisioning requirements PFRS 9.
She noted that to determine the amount which will be added back to CET 1 capital, a BSFI will have to “compare the sum of its Stage 1 and Stage 2 provisioning booked under allowance for credit losses as of the current reporting period with the sum of its Stage 1 and Stage 2 provisioning booked under allowance for credit losses as of end-December 2019.”
“If the sum of Stage 1 and Stage 2 provisioning for the current reporting period is higher than that recorded as of end-December 2019, the add-back factor corresponding to the period of availment shall be applied on the resulting difference to determine the amount that may be added back to CET 1 capital,” said Fonacier.
But, if the amount of Stage 1 and Stage 2 provisions for the current period is lower or equal to the amount recorded as of end-December 2019, no amount will be added back to CET 1 capital, said Fonacier.