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Type of Publication: Letter
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Date: August 31, 2020
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To:
- Banks
- Bank Holding Companies
- Federally Regulated Trust and Loan Companies
On March 27, 2020,
OSFI announced that in situations where a federally regulated deposit-taking institution (DTI) grants a borrower a payment deferral, these loans will continue to be treated as performing loans under the Capital Adequacy Requirements (CAR) Guideline for the duration of the deferral up to a maximum of 6 months. It was also communicated that OSFI would revisit the special capital treatment in the future, as needed.
OSFI continues to monitor the evolving situation with COVID-19, and has been in frequent contact with institutions to assess their operational capacity and management of the current economic challenges. As a result, today OSFI is announcing the following updates to the special capital treatment of loans subject to payment deferrals:
- Loans granted payment deferrals before August 31 will continue to be treated as performing loans under the CAR Guideline for the duration of the deferral, up to a maximum of 6 calendar months from the effective date of the deferral;
- Loans granted new payment deferrals after August 30 and on or before September 30 will be treated as performing loans under the CAR Guideline for the duration of the deferral, up to a maximum of 3 calendar months from the approval date of the deferral; and
- Loans granted payment deferrals with approval dates after September 30, 2020 will not be eligible for the special capital treatment.
This change supports the accurate measurement of DTIs’ capital needs and the long-term integrity of OSFI’s capital framework. While the special capital treatment and regulatory flexibility related to payment deferrals was warranted at the onset of COVID-19, as both lenders and borrowers adapted to the extraordinary circumstances and unprecedented disruptions related to the pandemic, banks are now in a better position to employ their business-as-usual alternatives to support troubled borrowers. As such, the special capital treatment for loans with payment deferrals is no longer warranted and is being phased out through the changes being announced.
Examples
- A loan that was granted a payment deferral with an effective date on July 31 will continue to be treated as a performing loan pursuant to the special capital treatment for the duration of the deferral, for a maximum of 6 calendar months from the
effective date of the deferral, or up to January 31, 2021.
- A loan, that has not previously been granted a payment deferral, but is granted a new payment deferral with an approval date on September 30, would be treated as a performing loan pursuant to the special capital treatment for the duration of the deferral, for a maximum of 3 calendar months from the
approval date of the deferral, or up to December 31, 2020.
- A loan granted a payment deferral on or after October 1 as part of a DTI’s business-as-usual support programs for troubled borrowers will not be eligible to receive the special capital treatment.
OSFI continues to monitor the impacts of COVID-19 on banks and is prepared to adjust its guidance and temporary measures if necessary.
Further clarifications can be found in our
updated FAQs for Federally Regulated Deposit-Taking Institutions.