CHL CMF released for consultation a new version of the regulations that establish the standardized methodology (ME) utilized for calculating provisions for consumer loans.
Proposal Highlights
Draft of standard methodology for calculating provisions for all loans granted by banks.
Specifically, provisions for placements and contingent consumer credits by banks.
Provisions are the accounting record of expected loss (EP) of bank credit operations.
Its calculation guarantees that banks have sufficient resources to cover losses with the loans they grant, so they carry out adequate prudential management of credit risk.
PE calculated as product of 12-month probability of default (PD) and loss given default (LGD); CMF has developed various methodologies for the PD and LGD parameters.
Proposal aims to set ME of provisions for consumer loans in Chapter B-1 of CNC.
With regards to other portfolios, the regulations establish matrices for determining the PD and LGD parameters that must be used to calculate the level of provisions.
The determination of the PD using draft ME is simpler and is based on 3 risk factors.
Factors are better aligned with provision management carried out by bank institutions.
Regarding the LGD, openings are generated according to the type of product, considering the particularities related to collection that each of them could have.
Expected Impact
Proposal would result increase in provisions close to 487 million dollars as of Mar. 2023
Equivalent to 18.1% increase in relation to stock of provisions in force on that date.
Provisions calculated in this second regulatory proposal are lower than prior proposal.
Lower impact of new proposal is mainly due to reduction in the value of the LGD.
Increase in consumer provisions not have major effect on capital adequacy levels.
