Authorization of special accounting standards for credit institutions by the CNBV. Part III
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On September 23, 2020 the Ministry of Finance and Public Credit (SHCP), through the National Banking and Securities Commission (CNBV), issued new measures to support people and companies to mitigate the economic effects as consequence of the contingency derived from COVID-19, which simultaneously allow credit institutions and other financial intermediaries to restructure credits from clients that required them.
On March 24 of this year, the Asociación de Bancos de México, A.C. (Mexico Banks Association), requested the CNBV to issue special accounting standards in order to support those clients who were unable to comply with their credit obligations. This, in view of the negative impact that the spread of COVID-19 could generate in several economic sectors.
In response to the above-mentioned, on March 25, the CNBV published a press release in which it informed that, with the purpose of mitigating the economic effects originated from the health contingency by COVID-19, it will issue temporally special accounting standards.
On March 26 of this year, the CNBV issued special accounting standards for purpose of supporting clients who were unable to comply with their credit obligations with credit institutions.1 Regarding such special accounting standards, the following are noteworthy: 2
- Allow the restructuring or renewal of credits to benefit the liquidity of the borrowers, by extending the payment of principal and interest for up to 6 months; such credits will not be reported to the credit information companies (Mexican sociedades de información crediticia) as matured.
- Defer the creation of preventive estimates for credit risks derived from removals, write-offs, bonuses or discounts if these have an impact on lower payments for the borrowers.
- Prohibit credit institutions from: (i) making contractual amendments that explicitly or implicitly consider the capitalization of interest, or the collection of any type of commission as consequence of the restructuring; (ii) restricting, reducing or cancelling previously authorized or agreed credit lines; (iii) requesting additional guarantees or their replacement in the case of restructuring.
In general terms, this regulation by exception allows entities to continue registering in their accounting the consumer, housing and commercial loans that are subject to restructuring or renewal, as “good standing portfolio” (cartera vigente), as long as they are loans recorded with such character as of February 28, 2020. Likewise, this regulation granted credit institutions with a term of 120 calendar days to restructure or renew their portfolio, counted from February 28.
This term elapsed on June 26 of this year; however, on the 29th of that month, the CNBV disclosed a press release, in which it states that such term was extended to July 31 of this year, as well as that the credit operations authorized in March that have been impacted afterwards by the negative effects of the contingency may benefit from these support measures.3
On September 23, 2020, the SHCP, through the CNBV, provided new measures which have the purpose of continuing supporting those who have suffered adverse economic effects as a consequence of the contingency derived from COVID-19, as well as granting regulatory relief for credit institutions and other financial intermediaries to restructure credits from clients that required them, without negative consequences.
The regulatory relief aims, in general terms, to encourage credit restructuring in order for the financial entities to adjust the payment of credits to the economic reality of their borrowers and their families, for such purposes the entities shall reduce the payments that have been made by at least twenty five percent (25%), which will result in extending the remaining term of such credits by up to fifty percent (50%) of the original term, as well as reducing the interest rate and capital write-offs.
According to the foregoing, the four new measures to encourage and allow credit institutions and other financial intermediaries to restructure credits from clients that required them, are:
- Calculate a lower amount of specific reserves when agreeing upon a restructure with the client.
- Recognize the specific reserves that are released as a result of the credit restructuring as additional reserves.
- Recognize a higher regulatory capital as a result of considering the additional reserves as supplementary capital.
- Cautiously reduce capital requirements regarding credit risks.
Additionally, the new measures aim to encourage financial inclusion and granting of new credits, for which the following three measures will be applied to credit institutions:
- Buffer capital will be extended to December 31, 2021.
- Liquidity requirements will be extended to March, 2021, which will allow credit institutions to provisionally reduce liquidity buffers under one hundred percent (100%) of their needs.
- Regulation that allows account opening and granting of credits without going to the branches of the credit institution will apply to companies. Likewise, the limits for new credits and account openings are eliminated, facilitating the opening of simplified identification accounts considered as low risk for SOFIPOs (Sociedades Financieras Populares) and SOCAPs (Sociedades Cooperativas de Ahorro y Préstamo).
Shanty Rubio González (Legal Intern, White & Case) assisted in the development of this publication.
1 Afterwards, the CNBV issue special accounting standards for financial entities that grant credits and are subject to supervision of such commission.
2 For further details, please refer to the following Client Alert: https://www.whitecase.com/sites/default/files/2020-03/autorizacion-de-criterios-contables-especiales-a-las-instituciones-de-credito-por-parte-de-la-cnbv.pdf
3 For further details, please refer to the following Client Alert: https://www.whitecase.com/sites/default/files/2020-07/authorization-of-special-accounting-standards-for-credit-institutions-by-the-cnbv-spanish.pdf
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