Financial Alert – March 2020

SBS mitigates the effective equity requirement for credit risk exposure and enables the companies of the financial system to use the additional Effective Equity for the established business cycle component

In the context of the State of Emergency and other restrictive measures adopted by the Government to prevent the spread of COVID-19, the SBS issued Multiple Official Letters No. 10997-2020-SBS, 11150-2020-SBS and 11170-2020-SBS («Multiple Official Letters»), through which it empowered the companies of the financial system («EFS») to amend the credit agreements of those debtors affected by that situation, without such amendments constituting a refinancing and provided that the provisions of the abovementioned Multiple Official Letters are complied with.

Taking into account that such contractual amendments could generate an increase in the effective equity requirement for credit risk exposure according to the methodology provided for in the Regulation on the Effective Equity Requirement for Credit Risk Exposure approved by SBS Resolution No. 14354-2009 («PERC Regulation»), the SBS has issued Resolution SBS No. 1264-2020 which provides that:

1. The extension of the term of non-revolving consumer credits according to the Multiple Official Letters and other provisions related to the rescheduling of credits within the context of the State of Emergency, does not increase the weighting factor referred to in Article 20 of the PERC Regulation for those credits as at February 29, 2020.
2. The extension of the term of mortgages credits according to the Multiple Official Letters and other provisions related to the rescheduling of credits within the context of the State of Emergency, does not increase the weighting factor referred to in Article 21 of the PERC Regulation corresponding to those credits as at February 29, 2020.

Furthermore, in order to enable the EFS to cope with unexpected losses resulting from the rescheduling of credits and the current emergency situation, through SBS Resolution No. 1264-2020, the SBS also empowers the EFS to dispose of the additional effective equity that they have accumulated as at March 28, 2020, for the economic cycle component referred to in the Regulation on the Additional Effective Equity Requirement approved by SBS Resolution No. 8425-2011, as amended.