BCB Normative Instruction No. 464

BCB NORMATIVE INSTRUCTION No. 464, OF 11 APRIL 2024

Normative document repealed by BCB Normative Instruction No. 560, of 6/12/2024.

Clarifies the criteria to be observed in estimating the parameters for measuring the expected loss associated with credit risk addressed in CMN Resolution No. 4.966, of 25 November 2021, and BCB Resolution No. 352, of 23 November 2023.

The Head of the Department of Regulation of the Financial System (Denor), using the authority conferred on him by art. 23, item I, subitem "a", of the Internal Rules of the Central Bank of Brazil, annexed to BCB Resolution No. 340, of 21 September 2023, and based on art. 67, item III, subitem "c", of CMN Resolution No. 4.966, of 25 November 2021,

R E S O L V E S :

Art. 1 Financial institutions and other institutions authorized to operate by the Central Bank of Brazil that use the complete methodology for calculating expected losses associated with credit risk must, in assessing expected loss as provided in arts. 40 of CMN Resolution No. 4.966, of 25 November 2021, and 40 of BCB Resolution No. 352, of 23 November 2023, individually estimate the following parameters, in percentage terms:

• I - the probability of the instrument being characterized as an asset with credit recovery problems; and

• II - the expected recovery of the financial instrument.

§ 1 The expected recovery referred to in item II of the caput corresponds to the quotient between the present value of the expected cash flows during the credit recovery process and the value of the calculation base defined in arts. 45 of CMN Resolution No. 4.966, of 2021, and 45 of BCB Resolution No. 352, of 2023.

§ 2 When estimating the expected recovery of the financial instrument, institutions must observe the following criteria:

• I - use as a reference for the beginning of the recovery process the date on which the instrument was characterized as an asset with credit recovery problems;

• II - consider as expected cash flows:

  • a) positive: the amounts and assets whose receipt is probable throughout the credit recovery process; and

  • b) negative: the direct and indirect recovery costs probable throughout the credit recovery process;

• III - use the effective interest rate of the instrument at initial recognition; and

• IV - consider the value of the calculation base defined on the date referred to in item I.

§ 3 For the purposes of the provisions of § 2, item II, the following do not form part of the cash flows:

• I - the carrying amount of the financial instrument;

• II - the provisions for expected losses associated with credit risk;

• III - the write-offs carried out under arts. 49 of CMN Resolution No. 4.966, of 2021, and 49 of BCB Resolution No. 352, of 2023; and

• IV - the amortizations prior to the date referred to in § 2, item I.

Art. 2 This Normative Instruction enters into force on 1 January 2025.

GILNEU FRANCISCO ASTOLFI VIVAN

NOTE 214/2024 – BCB/DENOR, OF 10 APRIL 2024

It provides the basis for the proposal to issue a normative instruction that clarifies the criteria to be observed in estimating the parameters for assessing the expected loss associated with credit risk addressed in CMN Resolution No. 4.966, of 25 November 2021, and BCB Resolution No. 352, of 23 November 2023.

Mr. Head of Denor,

This Note provides the basis for the proposal to issue a normative instruction that clarifies the appropriate criteria to be observed in assessing the expected loss associated with credit risk, as provided in arts. 40 of CMN Resolution No. 4.966, of 25 November 2021, and 40 of BCB Resolution No. 352, of 23 November 2023, in accordance with the competence of the Department of Regulation of the Financial System (Denor), using the authority conferred on it by art. 23, item I, subitem "a", of the Internal Rules of the Central Bank of Brazil, annexed to BCB Resolution No. 340, of 21 September 2023.

2. After the issuance of CMN Resolution No. 4.966, of 2021, and BCB Resolution No. 352, of 2023, the units linked to the Director of Supervision (Difis) of this Central Bank, in the process of monitoring the implementation of the provisions of these normative acts, have encountered doubts from supervised institutions regarding the estimation of the parameters addressed in arts. 40 of the aforementioned Resolutions. Therefore, in order to ensure the adequate calculation of expected loss and the homogeneous application of the rules by all institutions, it is necessary to issue a normative instruction providing for the matter.

3. It should be noted that the calculation of expected loss in accordance with the precepts established in the regulations is essential to achieve its ultimate objective, namely, to ensure adequate levels of provision necessary for maintaining the stability and soundness of the financial system.

4. In compliance with the provisions of art. 5 of Law No. 13.874, of 20 September 2019, Decree No. 10.411, of 30 June 2020, determines that proposals for normative acts of general interest to economic agents formulated by bodies and entities of the direct, autarchic, and foundational federal public administration, as well as by collegiate bodies through the body or entity responsible for providing administrative support, be preceded by a regulatory impact analysis (RIA).

5. However, as provided in art. 4, item V, subitem "b", of that Decree, the obligation to prepare an RIA may be waived for a normative act aimed at preserving the soundness of the financial market. Thus, the normative instruction proposed herein is exempt from the preparation of an RIA.

For your consideration.

UVERLAN RODRIGUES PRIMO Deputy Head

Agreed.

GILNEU FRANCISCO ASTOLFI VIVAN Department Head