Canada delays capital changes for smaller banks, eases liquidity rules

By Nichola Saminather

TORONTO (Reuters) - Canada's banking regulator is postponing the implementation of changes to capital requirements for smaller banks as part of a slew of measures undertaken by authorities to limit the economic fallout from the coronavirus pandemic, it said on Friday.

The Office of the Superintendent of Financial Institutions (OSFI) is also temporarily easing its capital and liquidity rules for bigger banks, changing credit loss provisioning, allowing more loans to be pledged to covered bonds and urging them to use liquid assets and capital buffers.

The measures "are being introduced to afford institutions further flexibility in addressing current conditions while promoting financial resilience and stability," OSFI said in a letter to banks.

The changes follow a promise by the Canadian government on Friday to cover 75% of wages for small businesses to stem job losses, a reduction in the central bank's key interest rate to the lowest level in a decade to stimulate a faltering economy.

OSFI also said that loans subject to payment deferrals introduced as another measure to limit the pandemic's economic impact will continue to be treated as performing loans, and should not trigger an increase in credit risk.

Some loss allowances that would have been considered part of supplementary Tier 2 capital can instead be included in Tier 1 capital, which is a bank's primary and highest quality source of funding, the Office of the Superintendent of Financial Institutions said in a letter to banks.

OSFI also raised the proportion of total balance sheet assets pledged for covered bonds to a maximum of 10% from 5.5% previously.

Earlier on Friday, the Governors and Heads of Supervision (GHOS), the body that oversees the Basel Committee of global banking regulators, said they will give banks until January 2023 to implement pending capital rules.

In line with the change, OSFI is delaying its own implementation of the final Basel III reforms to the first quarter of 2023, it said.

(Reporting By Nichola Saminather; Editing by Alistair Bell)

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