Provisional win

20 March 2020 By Liam Proud Follow @liamwardproud

The UK regulator told banks to treat the virus shock as temporary when calculating bad debt. That gives them leeway to be flexible with vulnerable borrowers without worrying about a capital whack. It’s less drastic than suspending accounting rules. Other watchdogs should follow.

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The Bank of England on March 20 said lenders should take into account the “temporary nature” of the economic shock caused by the coronavirus when calculating expected credit losses during the crisis.

Banks have asked regulators for relief from a new accounting standard, known as IFRS 9, which forces them to begin recognising potential losses on loans much earlier than under previous rules.

The UK supervisor said that banks “should take into account the relief measures – such as repayment holidays – that will be made available to enable borrowers who are affected by the Covid-19 outbreak to resume regular payments”.

In particular, use of mortgage repayment holidays shouldn’t necessarily push otherwise healthy borrowers into a riskier loan category, known under IFRS 9 as Stage 2.

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