The PRA has published a statement reflecting on the FCA’s draft updated guidance for firms in relation to mortgage payment deferrals, which was published on 26 August 2020. The guidance explains that if, at the end of the existing Covid-19 payment deferrals, borrowers are not able to resume payments in full immediately with all deferred sums either paid in full or capitalised, tailored forbearance arrangements provided in accordance with the FCA’s draft updated guidance should be considered.
In its statement, the PRA reflects on how these tailored forbearance arrangements are likely to be as good an indicator of SICR, credit impairments or defaults as forbearance was prior to the pandemic.
The regulator does, however, recognise that the position will be clear-cut in some cases, while a judgment will need to be made in others. It says that, when making this judgment, the guidance it published in June 2020 for making holistic assessments of loans subject to payment deferrals for indicators of SICR or credit impairment will be relevant.
The PRA also considers that its 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.
Further, the PRA says the guidance it set out in its letter in March 2020 on the treatment of borrowers that breach covenants due to Covid-19, on IFRS 9 expected credit loss (“ECL“) model risk, and on the need for post-core ECL model adjustments continues to be relevant.