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Archive » December 2020 » Calendar provisioning: implementation problems and the impact on Npls and the cost of credit

Calendar provisioning: implementation problems and the impact on Npls and the cost of credit

Leonardo Bellucci, Antonio Della Valle, Andrea Resti
December 2020 - n. 12
Keywords: Covid-19, vigilanza bancaria, rischio di credito, Covid-19, bank supervision, credit risk
Jel codes: G21, G28

Calendar provisioning requires banks to write down loans faster than they did in the past. Its implementation poses several interpretation challenges, e.g. when it comes to offsetting coverage across different exposures, identifying new loans, taking into account Pillar 1 capital, allocating the benefits arising from collateral, accounting for purchased Npls. The new rules are going to affect Npl management, but can also be expected to trigger a material increase in the cost of credit issued to performing borrowers. Post Covid-19 regulatory action aimed at easing calendar provisioning has not been entirely successful, as it did not address the impact of the pandemic on pre-existing Npls. A smart, flexible interpretation of the new rules looks as the the best guarantee against unintended consequences.

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