Accounting Alert

This Accounting Alert is issued to circulate Bangko Sentral ng Pilipinas (BSP) Memorandum No. 2021-55 (Memorandum) dated October 19, 2021 on the temporary regulatory relief on the capital treatment of provisioning requirements under PFRS 9 for all BSP-supervised financial institutions (BSFIs).

Overview

Cognizant of the ongoing COVID-19 situation, the Monetary Board of the BSP approved the adoption of temporary regulatory relief on the capital treatment of provisioning requirements under PFRS 9. Covered BSFIs will be allowed to add-back increase in Stage 1 and Stage 2 provisioning requirements booked under allowance for credit losses from end of December 2019 to Common Equity Tier 1 (CET 1) capital over a period of two (2) years starting January 1, 2022 reporting period, subject to a declining add-back factor.

Determining the Add-back Factor

In determining the amount which will be added back to CET 1 capital, the following should be observed:

1. Compare the sum of Stage 1 and Stage 2 provisioning booked under allowance for credit losses as of the current reporting period with the sum of 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.
   • 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 shall be added back to CET 1 capital.
2. The amount of general provisions (GP) (Stage 1 provisions) and Retained Earnings GP (RE-GP) that will be considered as Tier 2 capital shall be reduced by the amount of Stage 1 provisions added back to CET 1 capital. The amount that will be added to Tier 2 capital will continue to be subject to the maximum limit of 1.0 percent of credit risk-weighted assets (RWA).

Guidelines for Covered BSFIs 

Covered BSFIs that follow the provisioning requirements under Appendix 15 of the Manual of Regulations for Banks and Appendices Q-14, S-8 and N-11 of the Manual of Regulations for Non-Bank Financial Institutions shall be guided by the following:

• A covered BSFI shall determine its transitional adjustment amount which is the difference in its 1.0 percent general loan loss provisions(GLLP), equivalent to the BSFI’s Stage 1 provisions that are charged to profit or loss, and Stage 2 provisions determined in accordance with the BSP’s guidelines from end-December 2019 to the current reporting period.
• If the transitional adjustment amount is greater than zero or represents an increase from the GLLP/Stage 1 and Stage 2 provisions recorded as of end-December 2019, an add-back factor corresponding to the period of availment shall be applied on the transitional adjustment amount. This amount shall be added back to CET 1 capital. If the transitional adjustment amount is less than or equal to zero, no amount shall be added back to CET 1 capital.
• The amount of GP (Stage 1 provisions) that will be considered by the BSFI as Tier 2 capital shall be reduced by the amount of Stage 1 provisions added back to CET 1 capital. The amount that will be added to Tier 2 capital will continue to be subject to the maximum limit of 1.0 percent of credit RWA.

Covered entities that will avail the regulatory relief shall comply with certain conditions provided in the Memorandum.

See attached BSP Memorandum for further details. ​