Issuance of the Regulations for the Update of the Supervisory Provisions on Credit Exposures and the Circular on Minimum Coverage of Impaired Credit Exposures of Banks.
The Central Bank of the Republic of San Marino has announced the issuance of a Regulations for Updating the Supervisory Provisions on Credit Exposures, as well as a Circular on Minimum Coverage of Impaired Credit Exposures of Banks. These regulations will come into effect on May 15th, with applicability starting from January 1st, 2024.
The early implementation of the new provisions will enable banks to fully assess the impact on their financial statements of the calendar provisioning, as compared to the alternative of transferring non-performing exposures (NPEs) to a securitization vehicle.
The time granted will also allow for the necessary adjustments to information systems, organizational structures, and control mechanisms to comply with the new, more stringent regulations. This will prevent significant changes to the credit taxonomy and the resulting reclassifications, both from a prudential and accounting perspective, from impacting the ongoing financial year.
The final versions of the regulatory acts reflect the outcomes of the public consultation process, which concluded on March 10th (see press release), as well as the financial impact assessment carried out by the Central Bank, based on data provided by the banks by March 31st. This analysis has led to a favorable evaluation of a six-month technical extension to the initial effective date.
The changes introduced, aside from those directly resulting from the extension and minor refinements in form, are as follows:
The regulation concerning the identification of threshold interest rates for anti-usury purposes has been aligned, solely at the taxonomic level, through the inclusion of an additional article in the Regulation.
It has been clarified that, for the purposes of determining the applicable regime under Pillar I (as per the Regulation) or Pillar II (as per the Circular), reference is made to the date of the credit grant (respectively post or pre January 1, 2024), with the first regime also including those credits granted before this date but subsequently modified in terms and conditions to increase the authorized operational amount.
Additionally, the Circular has clarified that, in line with the methodology for calculating the NPE ratio, the coverage ratio of guarantees must be calculated based on the gross carrying value of the impaired credit exposure. In the case of real estate guarantees, this also includes assets arising from the termination of leasing contracts of the same type.
The introduction of provisions related to calendar provisioning, as outlined in Regulation (EU) No. 630/2019 and the ECB's March 2018 Addendum to its NPL Guidelines, together with alignment to the European credit classification taxonomy under Reg. (EU) No. 575/2013 (CRR), Reg. (EU) No. 171/2018, and Reg. (EU) No. 451/2021, marks a significant step forward in the ongoing process of incorporating the EU regulatory framework within the banking sector. This contributes to strengthening our system, enhancing its integration into global financial markets.