Central Banks across the world have taken proactive steps to tackle the economic stress caused by Covid-19. These steps have included liquidity measures, lowering of interest rates, temporary relaxations in regulatory requirements for lending institutions.
List of some important steps taken by central banks (till July 31st) of few major economies and India’s neighbours is presented below :
- The policy rate was cut by 25 basis points twice on March 3 and 19, to 0.25 percent.
- On March 19, the Reserve Bank of Australia (RBA) announced yield targeting on 3-year government bonds at around 0.25 percent through purchases of government bonds in the secondary market.
- To assist with the smooth functioning of Australian capital markets, the RBA broadened the range of eligible collateral for open market operations to include securities issued by non-bank corporations with an investment grade.
- The RBA established a swap line with U.S. Fed for the provision of US dollar liquidity in amounts up to US$60 billion.
- To allow banks to lend more to SMEs during the period of disruption caused by COVID-19, RBA has established a term funding facility of at least A$90 billion for access to three-year funding at 25 basis points.
- The Australian Prudential Regulation Authority (APRA) provided temporary relief from its capital requirement, allowing banks to utilize some of their current large buffers to facilitate ongoing lending to the economy as long as minimum capital requirements are met. APRA also announced on March 30 that it would be deferring its scheduled implementation of the Basel III reforms in Australia by one year to January 2023. On July 27, APRA updated its guidance issued in April, which expected banks and insurers to consider deferring decisions on the level of dividends or approve a dividend at a materially reduced level, with a 50 percent cap on payout ratios for the remainder of this calendar year.
- APRA announced on March 23 that loans on repayment deferrals in the context of COVID-19 need not be treated as being in arrears for a period of up to six months for capital adequacy and regulatory reporting purposes for borrowers who have been meeting their repayment obligations. On July 7, the Australian Banking Association announced that banks will extend the period of deferred repayments by up to another four months for affected borrowers. APRA also extended the regulatory approach on deferred repayments to cover a maximum period of up to 10 months until March 31, 2021. In addition, APRA clarified that loans that are restructured before March 31, 2021 to put the borrower on a sustainable financial footing may continue to be regarded as performing loans for capital adequacy purposes.
Bangladesh Bank (BB) has focussed to ensure that there is adequate liquidity in the financial system to support the operations of financial institutions, and it has announced that it will buy treasury bonds and bills from banks.
- Further, the repo rate was lowered from 6 percent to 5.75 percent effective March 24th and was further reduced to 5.25 percent effective April 12.
- BB proposed a more expansionary monetary stance in its FY2020-2021 Monetary Policy Statement through another cut in the repo rate from 5.25 percent to 4.75 percent on July 29th.
- The CRR was initially reduced from 5 percent to 4.5 percent (daily-basis) and from 5.5 percent to 5 percent (bi-weekly basis), with a further reduction to 3.5 percent and 4 percent, respectively, from April 15. Recently, CRR was cut to 1.5% (daily basis) and 2.0% (bi-weekly basis) for offshore banking operation, effective July 1, and 1.0% (daily basis) and 1.5% (by-weekly basis) for NBFIs, effective June 1.
- The Export Development Fund was raised to $5 billion, with the interest rate now fixed at 2 percent and the refinancing limit increased. BB has created several refinancing schemes amounting to a total of Tk 380 billion, a 360-day tenor special repo facility and a credit guarantee scheme to support exporters, farmers, SMEs and to facilitate the implementation of the government stimulus packages. To further support farmers, BB also announced an agriculture subsidy program that will take effect for 15 months until mid-2021.
- In addition, BB has taken measures to delay non-performing loan classification, waive credit card fees and interests, suspend loan interest payments, impose restrictions on bank dividend payments, extend tenures of trade instruments, and ensure access to financial services.
- The central bank lowered the policy rate (SELIC) by 200bps since mid-February, to the historical low of 2.25 percent.
- Measures to increase liquidity in the financial system (reduction of reserve requirements and capital conservation buffers, and a temporary relaxation of provisioning rules, among others) have been implemented.
- The reserve requirement was reduced from 25 to 17
- The central bank also opened a facility to provide loans to financial institutions backed by private corporate bonds as collateral, changed capital requirements for small financial institutions, and allowed banks to reduce provisions for contingent liabilities provided the funds are lent to SMEs. In addition, the Fed has arranged to provide up to US$60 billion to the central bank through a swap facility that will remain in place for the next six months.
- The five largest banks in the country agreed to consider requests by individuals and SMEs for a 60-day extension of their maturing debt liabilities.
Key measures adopted by the Bank of Canada include:
- Reducing the overnight policy rate by 150 bps in March (to 0.25 percent)
- Expanding the list of eligible collateral for Term Repo operations to the full range of eligible collateral for the Standing Liquidity Facility (SLF), except the Non-Mortgage Loan Portfolio (NMLP)
- Supporting the Canada Mortgage Bond (CMB) market by purchasing CMBs in the secondary market;
- Announcing the launch of the Standing Term Liquidity Facility, under which loans could be provided to eligible financial institutions in need of temporary liquidity support; and
- Announcing the Provincial Money Market Purchase (PMMP) program, the Provincial Bond Purchase Program (PBPP), the Commercial Paper Purchase Program (CPPP), the Corporate Bond Purchase Program (CBPP), and the purchase of Government of Canada securities in the secondary market
- Other measures in the financial sector include: i) OSFI, the bank regulator, lowered the Domestic Stability Buffer for D-SIBs to 1 percent of risk weighted assets (previously 2.25 percent); ii) under the Insured Mortgage Purchase Program, the government will purchase up to $150 billion of insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC); iii) the federal government announced $95 billion in credit facilities (including $13.8 billion in forgivable loans) to lend to firms under stress, with ; and iv) Farm Credit Canada will receive support from the federal government that will allow for an additional $5.2 billion in lending capacity to producers, agribusinesses, and food processors.
Key measures taken by Public Bank of China include:
- Liquidity injection into the banking system via open market operations (reverse repos and medium-term lending facilities),
- Expansion of re-lending and re-discounting facilities by RMB 1.8 trillion to support manufacturers of medical supplies and daily necessities, micro-, small- and medium-sized firms and the agricultural sector (of which 0.8 trillion was phased out at end-June) and reduction of their interest rates by 50 bps (re-lending facilities) and 25 bps (re-discounting facility),
- Reduction of the 7-day and 14-day reverse repo rates by 30 bps, as well as the 1-year medium-term lending facility (MLF) rate and targeted MLF rate by 30 and 20 bps, respectively,
- Targeted RRR cuts by 50-100 bps for large- and medium-sized banks that meet inclusive financing criteria which benefit micro- and small-sized enterprises (MSEs), an additional 100 bps for eligible joint-stock banks, and 100 bps for small- and medium-sized banks to support SMEs,
- Introduction of new instruments to support lending to MSEs, including a zero-interest “funding-for-lending” scheme (RMB 400 billion) to finance 40 percent of local banks’ new unsecured loans and incentivizing them to further extend payment holidays for eligible loans by subsidizing 1 percent of loan principles (RMB 40 billion).
- The government has also taken multiple steps to limit tightening in financial conditions, including measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties. Key measures include (i) encouraging lending to SMEs, including supporting uncollateralized SME loans from local banks, raising the target for large banks’ lending growth to MSEs from 30 percent to 40 percent, and establishing an evaluation system for banks’ lending to MSEs, (ii) delay of loan payments, with the deadline extended to the end of March 2021, and eased loan size restrictions for online loans, and other credit support measures for eligible SMEs and households, (iii) tolerance for higher NPLs and reduced NPL provision coverage requirements, (iv) support bond issuance by financial institutions to finance SME lending, (v) additional financing support for corporates via increased bond issuance by corporates, including relaxing rules on insurers for bond investments, (vi) increased fiscal support for credit guarantees, (vii) flexibility in the implementation of the asset management reform, and (vii) easing of housing policies by local governments.
The ECB decided to provide monetary policy suppor through:
- Additional asset purchases of €120 billion until end-2020
- Temporary additional auctions of the full-allotment, fixed rate temporary liquidity facility at the deposit facility rate and more favorable terms on existing targeted longer-term refinancing operations (TLTRO-III) between June 2020 and June 2021, with interest rates that can go as low as 50 bp below the average deposit facility rate. More recently, the ECB introduced a new liquidity facility (PELTRO), which consists of a series of non-targeted Pandemic Emergency Longer-Term Refinancing Operations carried out with an interest rate that is 25bp below the average MRO rate prevailing over the life of the operation. The PELTROs commenced in May will mature in a staggered sequence between July and September 2021.
- In March the ECB introduced an additional €750 billion asset purchase program of private and public sector securities (Pandemic Emergency Purchase Program, PEPP), initially through end-2020. On June 4, the weaker inflation outlook in the ECB’s June projections prompted the Governing Council to expand the size of the PEPP by €600 billion to €1.35 trillion. The duration of the program has been extended to at least June 2021, and the ECB will reinvest maturing securities until at least the end of 2022.
- Further measures included an expanded range of eligible assets under the corporate sector purchase program (CSPP), and relaxation of collateral standards for Eurosystem refinancing operations (MROs, LTROs, TLTROs). The ECB also announced a broad package of collateral easing measures for Eurosytem credit operations in early April. These include a permanent collateral haircut reduction of 20 percent for non-marketable assets, and temporary measures for the duration of the PEPP (with a view to re-assess their effectiveness before the end of 2020) such as a reduction of collateral haircuts by 20 percent, an expansion of collateral eligibility to include Greek sovereign bonds as well as an expansion of the scope of so-called additional credit claims framework so that it may also include public sector-guaranteed loans to SMEs, self-employed individuals, and households.
- In a move to mitigate the impact of possible rating downgrades on collateral availability, on April 22, the ECB also announced that it would grandfather until September 2021 the eligibility of marketable assets used as collateral in Eurosystem credit operations falling below current minimum credit quality requirements of “BBB-“ (“A-“ for asset-backed securities) as long as their rating remains at or above “BB” (“BB+” for asset-backed securities). Assets that fall below these minimum credit quality requirements will be subject to haircuts based on their actual ratings.
- The ECB Banking Supervision allowed significant institutions to operate temporarily below the Pillar 2 Guidance (P2G), the capital conservation buffer, and the liquidity coverage ratio (LCR). In addition, new rules on the composition of capital to meet Pillar 2 Requirement (P2R) were front-loaded to release additional capital
- The ECB Banking Supervision further decided to exercise – on a temporary basis – flexibility in the classification requirements and expectations on loss provisioning for non-performing loans (NPLs) that are covered by public guarantees and COVID-19 related public moratoria; it also recommended that banks avoid pro-cyclical assumptions for the determination of loss provisions and opt for the IFRS9 transitional rules.
- More recently, ECB Banking Supervision extended its recommendation on dividend distributions and share buy-backs until January 2021, asked banks to be extremely moderate with regard to variable remuneration, and clarified that it will give enough time for banks to restore buffers in order not to act pro-cyclically.
- On June 18, the European Parliament and the European Council adopted the “banking package,” which was proposed by the European Commission on April 28. The package provides targeted and exceptional legislative changes to the capital requirements regulation (CRR 2), including greater flexibility in the application of the EU’s accounting and prudential rules, which are aimed at facilitating bank lending to support the economy.
- The European Commission proposed on July 24 a Capital Markets Recovery Package with targeted adjustments to capital market rules, which aim to encourage greater investments in the economy, allow for the rapid re-capitalization of companies, and increase banks’ capacity to finance the recovery.
- Since March 27, the Reserve Bank of India (RBI) has reduced the repo and reverse repo rates by 115 and 155 basis points (bps) to 4.0 and 3.35 percent, respectively, and announced liquidity measures across three measures comprising Long Term Repo Operations (LTROs), a cash reserve ratio (CRR) cut of 100 bps, and an increase in marginal standing facility (MSF) to 3 percent of the Statutory Liquidity Ratio (SLR), now extended till end-September.
- The RBI has provided relief to both borrowers and lenders (now extended through end-August) and the Securities and Exchange Board of India (SEBI) temporarily relaxed the norms related to debt default on rated instruments and reduced the required average market capitalization of public shareholding and minimum period of listing.
- The implementation of the net stable funding ratio and the last stage of the phased-in implementation of the capital conservation buffers were delayed by six months.
- The RBI introduced regulatory measures to promote credit flows to the retail sector and micro, small, and medium enterprises (MSMEs) and provided regulatory forbearance on asset classification of loans to MSMEs and real estate developers (later extended to loans from NBFCs) and the priority sector classification for bank loans to NBFCs has been extended for on-lending for FY 2020/21.
- During April 17-20, the RBI, along with additional monetary easing, announced: (a) a TLTRO-2.0 (funds to be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs); (b) special refinance facilities for rural banks, housing finance companies, and small and medium-sized enterprises; (c) a temporary reduction of the Liquidity Coverage Ratio (LCR) and restriction on banks from making dividend payouts; (d) a standstill on asset classifications during the loan moratorium period with 10 percent provisioning requirement, and an extension of the time period for resolution timeline of large accounts under default by 90 days. Furthermore, state’s Ways and Means Advance (WMA) limits have been increased by 60 percent and the limit for the central government’s WMA for the remaining part of first half of the FY 2020/21 has been revised up to 2.0 trillion.
- On April 27, the RBI announced a special liquidity facility for mutual funds (SLF-MF) and a fixed-rate 90-day repo operation for banks exclusively for meeting the liquidity requirements of mutual funds, along with regulatory easing for liquidity support availed under the facility, later (April 30) extended to banks’ own deployed resources;
- On May 13, the government announced measures targeting businesses: (i) a collateral-free lending program with 100 percent guarantee, (ii) subordinate debt for stressed MSMEs with partial guarantee, and (iii) partial credit guarantee scheme for public sector banks on borrowings of non-bank financial companies, housing finance companies (HFCs), and micro finance institutions. The government also announced (i) a Fund of Funds for equity infusion in MSMEs, and (ii) a special purpose vehicle (SPV) to purchase short-term debt of the eligible non-bank financial companies and housing finance companies, fully guaranteed by the government and managed by a public sector bank. On May 22, the RBI undertook further regulatory easing, including the increase in the large exposure limit, relaxation of some of the norms for state government financing, credit support to the exporters and importers and extension of the tenor of the small business refinancing facilities.
- Bank Indonesia (BI) reduced the policy rate by 100 bps cumulatively in February, March, June, and July 2020, to 4 percent.
- BI also announced other measures to ease liquidity conditions, including: (i) lowering reserve requirement ratios for banks; (ii) increasing the maximum duration for repo and reverse repo operations (up to 12 months); (iii) introducing daily repo auctions; (iv) increasing the frequency of FX swap auctions for 1, 3, 6 and 12 month tenors from three times per week to daily auctions; and (v) increasing the size of the main weekly refinancing operations as needed..
- A Presidential decree has expanded BI’s authority to maintain the stability of the financial system in presence of the COVID-19 shock, including by facilitating BI liquidity assistance to banks, allowing BI to purchase government bonds in the primary market, and financing the deposit insurance agency (LPS) for bank solvency problems.
- The government and BI announced on July 6 a burden sharing scheme to help finance the COVID-19 response and economic recovery efforts during 2020. The scheme, expected to be implemented only in 2020, covers (i) BI’s purchases of government bonds with coupons at the BI’s policy rate to finance priority spending on public goods such health and social protection; (ii) the budgetary interest cost of spending support to firms will be subsidized by BI transfers to the budget, (iii) BI will act as buyer of last resort for long-term local-currency bonds to finance other spending. BI is providing funding to LPS through repo transactions and purchases of government bonds owned by LPS.
- On March 16, the Bank of Japan (BoJ) called a monetary policy meeting and announced a comprehensive set of measures which included targeted liquidity provision through an increase in the size and frequency of Japanese government bond (JGB) purchases, special funds-supplying operation to provide loans to financial institution to facilitate financing of corporates, a temporary increase in the annual pace of BoJ’s purchases of Exchange Traded Funds (ETFs) and Japan-Real Estate Investment Trusts (J-REITs), and a temporary additional increase of targeted purchases of commercial paper and corporate bonds.
- The BoJ has provided lending support through the special funds-supplying operation, and made purchases of Japanese government securities, commercial paper, corporate bonds, and exchange-traded funds.
- At its April 27 monetary policy meeting, the BoJ announced additional measures to maintain stability in financial markets and support credit provision. The BoJ decided to purchase a necessary amount of JGBs without setting an upper limit on its guidance on JGB purchases. In addition, it raised the maximum amount of additional purchases of commercial paper and corporate bonds, lifting the upper limit of commercial paper and corporate bond holdings to ¥20 trillion (US$186 billion) in total. The special funds-supplying operations have been scaled up by expanding the range of eligible counterparties and collateral to private debt (including household debt), as well as by applying a positive interest rate of 0.1 percent to the outstanding balances of current accounts held by financial institutions at the BoJ that correspond to the amounts outstanding of loans provided through this operation.
- On May 22, the BoJ introduced a new fund-provisioning measure to support financing of mainly small- and medium-sized enterprises, providing funds against loans such as interest-free and unsecured loans made by eligible counterparties based on the government’s emergency economic measures. The total size of the special funds-supplying operation and the new fund-provisioning measure amounts to about ¥90 trillion (US$838 billion).
- The government expanded the volume of concessional loan facilities (interest free without collateral) primarily for micro, small and medium-sized businesses affected by COVID-19 through the Japan Finance Corporation and other institutions. The government will also enhance access to loans with the same conditions from local financial institutions, such as local banks.
- To support borrowers during this period of stress, the Financial Services Agency (FSA) has reassured banks that they can assign zero risk weights to loans guaranteed under public guarantee schemes, draw down their regulatory capital and systemically important bank buffers to support credit supply, and draw down their stock of high-quality liquid assets below the minimum liquidity coverage ratio requirement. The FSA has also asked banks to defer principal payments on mortgage loans as needed, and refrain from charging fees for modifying mortgage loan conditions.
- The Bank of Korea (BOK) has taken several measures to ensure continued accommodative monetary conditions and facilitate financial system liquidity. These include 1) lowering the Base Rate by a cumulative 75 basis points, from 1.25 percent to 0.5 percent; 2) making unlimited amounts available through open market operations (OMOs); 3) expanding the list of eligible OMO participants to include select non-bank financial institutions; 4) expanding eligible OMO collateral to include bank bonds, certain bonds from public enterprises and agencies, and government-guaranteed MBS issued by KHFC; 5) easing collateral requirements for net settlements in the BOK payments system; and 6) purchasing Korean Treasury Bonds (KRW 3.0 trillion). To augment available funding for SMEs, the BOK increased the ceiling of the Bank Intermediated Lending Support Facilityby a total of KRW 10 trillion (about 0.5% of GDP) and lowered the interest rate to 0.25 percent (from 0.5-0.75 percent).
- On March 24, President Moon announced a financial stabilization plan of KRW 100 trillion (5.3 percent of GDP). The main elements are: 1) expanded lending of both state-owned and commercial banks to SMEs, small merchants, mid-sized firms, and large companies (the latter on a case-by-case basis) including emergency lending, partial and full guarantees, and collateralization of loan obligations; 2) a bond market stabilization fund to purchase corporate bonds, commercial paper, and financial bonds; 3) financing by public financial institutions for corporate bond issuance through collateralized bond obligations and direct bond purchases; 4) short-term money market financing through stock finance loans, BOK repo purchases, and refinancing support by public financial institutions; and 5) an equity market stabilization fund financed by financial holding companies, leading financial companies, and other relevant institutions.
- On April 22 additional measures were announced totaling KRW 25 trillion (1.3 percent of GDP), mainly through creation of a special purpose vehicle to purchase corporate bonds and commercial paper (KRW 10 trillion) and additional funds for SME lending (KRW 10 trillion). Financing support to exporters and specific industries has also been announced. On April 8, a package of measures totaling KRW 36 trillion (1.9 percent of GDP) was announced to ease financing constraints for exporters, including increasing the amount and maturity of trade credit and expanding trade insurance. On April 22, President Moon announced a key industry stabilization fund would be established for KRW 40 trillion (2.1 percent of GDP) and operated by Korea Development Bank to support seven key industries: airlines, shipping, shipbuilding, autos, general machinery, electric power, and communications. Funds will be raised by issuance of government-guaranteed bonds and contributions of private funds. Support will be provided through loans, payment guarantees, and investments. As conditions for accessing support, businesses will be required to maintain employment, limit executive compensation, dividends, and other payouts, and share benefits from business normalization in the future.
- Other measures taken pertaining to financial market stability include expansion of BOK repo operations to non-banks, creation of a BOK lending program to non-banks with corporate bonds as collateral, a temporary prohibition on stock short-selling in the equity markets, temporary easing of rules on share buybacks, and temporary easing of loan-to-deposit ratios for banks and other financial institutions and the domestic currency liquidity coverage ratio for banks.
- On 29th March the Nepal Rastra Bank (NRB) lowered its cash reserve ratio from 4 to 3 percent and reduced the interest rate on the standing liquidity facility rate from 6 to 5 percent. The NRB is no longer requiring banks to build up the 2 percent countercyclical capital buffer that was due in July 2020.
- The NRB temporarily relaxed reporting norms and announced that bank and financial institutions will not be charged or penalized for their non-compliance with regulatory and supervisory requirements in April.
- The size of the Refinance Fund has been increased to provide subsidized funding for banks willing to lend at a concessional rate to priority sectors including small and mid-size enterprises affected by the pandemic.
- On 29th April, NRB announced that banks will defer loan repayments due in April and May until mid-July. For working capital loans, banks will extend the repayment schedule of the amount due during the lockdown up to 60 days. Businesses in affected sectors, if they can show the needs, can qualify for additional working capital loans of up to 10 percent of the approved amount of their existing working capital loans, to be repaid within a year at most. The NRB directed banks to apply lower interest rates (up to 2 percentage points) when calculating the interest due for the period of mid-April to mid-July, applicable to borrowers from affected sectors.
- Further on July 17, NRB lowered the policy rate from 3.5 percent to 3 percent and announced that additional liquidity support will be made available through longer-term repo facility as necessary. The limit on the loan to value ratio for personal residential home loans was raised to 60 percent and margin natured loans to 70 percent from 65 percent. The limit on banks’ total loans was raised to 85 percent of the sum of core credit and deposits from 80 percent. The NRB requires banks to increase their loans to priority sectors, such as agriculture, energy, tourism, and micro, small and mid-size enterprises, to 40 percent from 25 percent by 2024.
- The State Bank of Pakistan (SBP) has responded to the crisis by cutting the policy rate by a cumulative 625 basis points to 7.0 percent since March 17.
- The SBP has also expanded the scope of existing refinancing facilities and introduced three new ones that aim at: (i) supporting hospitals and medical centers to purchase equipment to detect, contain, and treat COVID-19 (28 hospitals, PKR 6.1 billion, to date) (ii) stimulating investment in new manufacturing plants and machinery, as well as modernization and expansion of existing projects (27 new projects, PKR 11billion, to date); (iii) incentivizing businesses to avoid laying off their workers during the pandemic (1,900 firms , PKR 123 billion, to date).
- The SBP introduced temporary regulatory measures to maintain banking system soundness and sustain economic activity. These include: (i) reducing the capital conservation buffer by 100 basis points to 1.5 percent; (ii) increasing the regulatory limit on extension of credit to SMEs by 44 percent to PRs 180 million ; (iii) relaxing of the debt burden ratio for consumer loans from 50 percent to 60 percent; (iv) allowing banks to defer clients’ payment of principal on loan obligations by one year (with a total of PKR 605 billion being deferred to date); (v) relaxing regulatory criteria for restructured loans for borrowers who require relief beyond the extension of principal repayment for one year; and (vi) suspending bank dividends for the first two quarters of 2020 to shore up capital.
- More recently, the SBP has introduced mandatory targets for banks to ensure loans to construction activities account for at least 5 percent of the private sector portfolios by December 2021.
- The Central Bank of Russia (CBR) started selling FX reserves from the National Welfare Fund on March 10, reflecting the fall in oil prices below the reference price under the fiscal rule and later for the purchase of Sberbank by the government. It also increased the limit on its FX swap operations. The CBR has temporarily introduced a long-term refinancing instrument (one month and one-year repos).
- The CBR has introduced temporary regulatory easing for banks intended to help corporate borrowers, and more favorable treatment for FX loans issued to certain sectors. Forbearance as regards provisioning for restructured corporate and SME loans will apply to all sectors, not only those affected by COVID. The CBR has introduced a new RUB 500bn facility for SME lending (in addition to the already allocated 150 billion rubles to provide loans to SMEs to support and maintain employment). Another 50 billion rubles will be allocated for similar purposes to borrowers who do not have SME status.
- From July 27 , the interest rate on CBR loans aimed at supporting lending to SMEs, to support and maintain employment, was reduced from 2.5 to 2.25 percent.
- The Deposit Insurance Fund contribution will be reduced from 0.15 percent to 0.1 percent through end-2020. Also, the CBR approved measures to ease liquidity regulations for systemically important credit institutions
- Further regulatory changes to support lending include new credit risk assessment methods and lower risk weights in mortgage lending that would free about Rub 300 bn (around 0.3 percent of GDP) of banking sector capital. Lower risk weights will be applied to subordinated bonds (including perpetual bonds) of largest non-financial corporations – the risk coefficient is reduced to 100 percent from 150 percent.
On July 24, the CBR cut the policy rate by 25 bps to 4.25 percent.
- The central bank (SARB) reduced the policy rate several times since the pandemic started: 100 bps to 5.25 percent on March 19, another 100 bps to 4.25 percent on April 14, 50 bps to 3.75 percent on May 21, and 25 bps to 3.5 percent on July 23.
- On March 20, it announced measures to ease liquidity conditions by: (i) increasing the number of repo auctions to two to provide intraday liquidity support to clearing banks at the policy rate; (ii) reducing the upper and lower limits of the standing facility to lend at repo-rate and borrow at repo-rate less 200 bps; and (iii) raising the size of the main weekly refinancing operations as needed. On March 23, the government announced the launch of a unified approach to enable banks to provide debt relief to borrowers.
- On March 25, the SARB announced further measures to ease liquidity strains observed in funding markets. The program aims to purchase government securities in the secondary market across the entire yield curve and extend the main refinancing instrument maturities from 3 to 12 months.
- On March 26, the SARB issued guidelines on modalities to provide debt relief to bank customers. On March 28, it announced temporary relief on bank capital requirements and reduced the liquidity coverage ratio from 100 to 80 percent to provide additional liquidity and counter financial system risks.
- On April 6, the SARB issued guidance on dividend and cash bonuses distribution to ensure bank capital preservation.
- Effective May 11, the SARB returned the number of repo auctions to once a day and, on May 12, announced a series of prudential priority measures for co-operative financial institutions on prudential matters, supervisory activities, as well as governance and operational issues.
United States of America
- Federal funds rate were lowered by 150bp in March to 0-0.25bp. Purchase of Treasury and agency securities in the amount as needed. Expanded overnight and term repos. Reduced existing cost of swap lines with major central banks and extended the maturity of FX operations; broadened U.S. dollar swap lines to more central banks; offered temporary repo facility for foreign and international monetary authorities.
- Federal Reserve also introduced facilities to support the flow of credit, in some cases backed by the Treasury using funds appropriated under the CARES Act. The facilities are: (i) Commercial Paper Funding Facility to facilitate the issuance of commercial paper by companies and municipal issuers; (ii) Primary Dealer Credit Facility to provide financing to the Fed’s 24 primary dealers collateralized by a wide range of investment grade securities; (iii) Money Market Mutual Fund Liquidity Facility (MMLF) to provide loans to depository institutions to purchase assets from prime money market funds (covering highly rated asset backed commercial paper and municipal debt); (iv) Primary Market Corporate Credit Facility to purchase new bonds and loans from companies; (v) Secondary Market Corporate Credit Facility to provide liquidity for outstanding corporate bonds; (vi) Term Asset-Backed Securities Loan Facility to enable the issuance of asset-backed securities backed by student loans, auto loans, credit-card loans, loans guaranteed by the Small Business Administration, and certain other assets; (vii) Paycheck Protection Program Liquidity Facility (PPPLF) to provide liquidity to financial institutions that originate loans under the Small Business Administration’s Paycheck Protection Program (PPP) which provides a direct incentive to small businesses to keep their workers on the payroll; (viii) Main Street Lending Program to purchase new or expanded loans to small and mid-sized businesses; and (ix) Municipal Liquidity Facility to purchases short term notes directly from state and eligible local governments.
- Supervisory action. Federal banking supervisors encouraged depository institutions to use their capital and liquidity buffers to lend, to work constructively with borrowers affected by COVID-19, and indicated COVID-19 related loan modifications would not be classified as troubled debt restructurings. Holdings of U.S. Treasury Securities and deposits at the Federal Reserve Banks could be temporarily excluded from the calculation of the supplementary leverage ratio for holding companies. Other actions include offering regulatory reporting relief and adjusting supervisory approach to temporarily reduce scope and frequency of examinations and give additional time to resolve non-critical, existing supervisory findings.
- Regulatory action. Lower the community bank leverage ratio to 8 percent. Provide extension transition for the Current Expected Credit Loss accounting standard. PPP covered loans will receive a zero percent risk weight, and assets acquired and subsequently pledged as collateral to the MMLF and PPPLF facilities will not lead to additional regulatory capital requirements. Allow early adoption of “the standardized approach for measuring counterparty credit risk”. And there will be a gradual phase-in of restrictions on distributions when a firm’s capital buffer declines.
- Fannie Mae and Freddie Mac have announced assistance to borrowers, including providing mortgage forbearance for 12 months and waiving related late fees, suspending reporting to credit bureaus of delinquency related to the forbearance, suspending foreclosure sales and evictions of borrowers for 60 days, and offering loan modification options.
Source: These steps have been compiled using data available on IMF’s website.