On 26 August, the PRA published a statement on IFRS9 and capital requirements, in light of the imminent conclusion of mortgage payment deferrals. The PRA’s earlier guidance, issued by way of letter to authorised firms on 3 March and 4 June, explained that, under the terms of the FCA’s guidance then in place, Covid-19 related payment deferrals were “being made widely available to borrowers requesting a deferral and were therefore not based on the individual financial circumstances of the borrower”. Therefore, they were not necessarily good indicators of significant increases in credit risk (SICR), credit impairments, or defaults.
The FCA also published guidance on 26 August on the end of mortgage deferrals, stating that where borrowers are unable to resume full payments immediately, tailored forebearance measures should be considered. The PRA confirms that these forebearance methods will likely constitute a good indicator of SICR.
The PRA’s earlier guidance on holistic assessments of loans continues to be relevant where firms have limited data to assess the individual financial circumstances of the borrower.
To read the PRA’s statement click here