Normative Instruction BCB No. 560 of December 6, 2024: Clarifies Criteria for Applying CMN Resolution No. 4,966 and BCB Resolution No. 352

Resolution No. 222

NORMATIVE INSTRUCTION BCB NO. 560, OF DECEMBER 6, 2024

Clarifies criteria to be observed in the application of CMN Resolution No. 4,966, of November 25, 2021, and BCB Resolution No. 352, of November 23, 2023.

The Head of the Financial System Regulation Department (Denor), using the authority granted by Article 23, item I, letter "a", of the Internal Regulations of the Central Bank of Brazil, annexed to BCB Resolution No. 340, of September 21, 2023, and based on Article 67, item III, letter "c", of CMN Resolution No. 4,966, of November 25, 2021,

R E S O L V E:

Article 1. This normative instruction clarifies criteria to be observed in the application of CMN Resolution No. 4,966, of November 25, 2021, and BCB Resolution No. 352, of November 23, 2023, by financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

Article 2. The prohibition on recognizing in the period's result revenue of any nature not yet received relating to a financial asset with credit recovery problems, as addressed in Article 17 of CMN Resolution No. 4,966, of 2021, and Article 17 of BCB Resolution No. 352, of 2023, does not apply to adjustments related to exchange rate variation and fair value.

Article 3. The provisions of Article 37, §§ 5 and 6, of CMN Resolution No. 4,966, of 2021, and Article 37, §§ 5 and 6, of BCB Resolution No. 352, of 2023, apply to financial assets classified in the fair value through profit or loss category, except for those mentioned in Article 1, § 3, of CMN Resolution No. 4,966, of 2021, and Article 1, § 4, of BCB Resolution No. 352, of 2023, which are not subject to accounting criteria for the establishment of provisions for expected losses associated with credit risk.

Article 3-A. The reallocation of all financial instruments of the same counterparty to Stage 3 by virtue of the provisions of Article 37, § 5, of CMN Resolution No. 4,966, of 2021, and Article 37, § 5, of BCB Resolution No. 352, of 2023, implies the characterization of these financial instruments as financial assets with credit recovery problems. (Included by Normative Instruction No. 657, of 9/1/2025.)

Article 4. The institutions mentioned in Article 1 that use the comprehensive methodology for calculating expected losses associated with credit risk must, in the assessment of expected loss as provided in Article 40 of CMN Resolution No. 4,966, of 2021, and Article 40 of BCB Resolution No. 352, of 2023, individually estimate the following parameters, in percentage terms:

I - the probability that the instrument will be characterized as an asset with credit recovery problems; and

II - the expectation of recovery of the financial instrument.

§ 1. The recovery expectation referred to in item II of the main text corresponds to the quotient between the present value of the cash flows expected during the credit recovery process and the value of the calculation base defined in Article 45 of CMN Resolution No. 4,966, of 2021, and Article 45 of BCB Resolution No. 352, of 2023.

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

I - use as a reference for the start of the recovery process the date on which the instrument is characterized as a problematic asset;

II - consider as expected cash flows:

a) positive: the values and assets whose receipt is probable during the credit recovery process; and

b) negative: the direct and indirect recovery costs probable during 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 § 2, item II, the following do not constitute cash flows:

I - the accounting balance of the financial instrument;

II - provisions for expected losses associated with credit risk;

III - write-offs made in accordance with Article 49 of CMN Resolution No. 4,966, of 2021, and Article 49 of BCB Resolution No. 352, of 2023; and

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

Article 5. The institutions mentioned in Article 1, when estimating the present value mentioned in Article 45, items III, IV, and V, of CMN Resolution No. 4,966, of 2021, and Article 45, items III, IV, and V, of BCB Resolution No. 352, of 2023, must use the interest rate and other contractual charges of the financial instrument itself.

Sole Paragraph. In the estimation referred to in the main text, the use of the rate related to the credit operation resulting from the use of the credit commitment, the credit to be released, and the financial guarantee provided is prohibited.

Article 6. The institutions mentioned in Article 1, when applying the provisions of Article 49 of CMN Resolution No. 4,966, of 2021, and Article 49 of BCB Resolution No. 352, of 2023, must write off the financial asset in full, and partial write-off is prohibited.

Article 7. The institutions mentioned in Article 1 that use the simplified methodology for calculating provisions for expected losses associated with credit risk must apply the effective interest rate in the calculation of expected loss, in accordance with Article 51, § 3, item III, of CMN Resolution No. 4,966, of 2021, and Article 51, § 3, item III, of BCB Resolution No. 352, of 2023.

Article 8. The provisions addressing the concepts, criteria, and accounting procedures regarding renegotiation, restructuring, and write-off of financial assets provided for in CMN Resolution No. 4,966, of 2021, and BCB Resolution No. 352, of 2023, apply to leasing operations, in accordance with Article 2, § 2, of CMN Resolution No. 4,975, of December 16, 2021, and Article 2, § 2, of BCB Resolution No. 178, of January 19, 2022.

Article 8-A. The restructuring concepts established in Article 2, item XXI, of CMN Resolution No. 4,966, of 2021, and Article 2, item XXI, of BCB Resolution No. 352, of 2023, do not include renegotiations that imply concessions to the counterparty resulting from decisions of the National Monetary Council or by virtue of other legal measures. (Included by Normative Instruction No. 643, of 7/17/2025.)

Sole Paragraph. The provisions of the main text do not apply to concessions to the counterparty with relevant deterioration of its credit quality. (Included by Normative Instruction No. 643, of 7/17/2025.)

Article 8-B. The financial liabilities generated by the transfer of financial assets, as per Article 9, item III, of CMN Resolution No. 4,966, of 2021, and Article 9, item III, of BCB Resolution No. 352, of 2023, must be classified according to the treatment provided in Section III of Chapter III of these Resolutions: (Included by Normative Instruction No. 657, of 9/1/2025.)

I - in the fair value through profit or loss category, in the case of the provisions of Article 33 and Article 34, item II, letter "a", of these Resolutions; and (Included by Normative Instruction No. 657, of 9/1/2025.)

II - in the amortized cost category, in other cases. (Included by Normative Instruction No. 657, of 9/1/2025.)

Article 9. Normative Instruction BCB No. 464, of April 11, 2024, published in the Official Gazette of the Union on April 12, 2024, is repealed.

Article 10. This Normative Instruction enters into force:

I - on the date of its publication, regarding Article 9; and

II - on January 1, 2025, regarding the remaining provisions.

GILNEU FRANCISCO ASTOLFI VIVAN

NOTE 855/2024–BCB/DENOR, OF DECEMBER 6, 2024

Justifies the proposal for the issuance of a normative instruction that clarifies criteria to be observed in the application of CMN Resolution No. 4,966, of November 25, 2021, and BCB Resolution No. 352, of November 23, 2023.

Dear Head of Denor,

This Note justifies the proposal for the issuance of a normative instruction that clarifies the appropriate criteria to be observed in the application of CMN Resolution No. 4,966, of November 25, 2021, and BCB Resolution No. 352, of November 23, 2023, according to the competence of the Financial System Regulation Department (Denor), using the authority granted by Article 23, item I, letter "a", of the Internal Regulations of the Central Bank of Brazil, annexed to BCB Resolution No. 340, of September 21, 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 correct application of some concepts and criteria established by the aforementioned Resolutions. Thus, in order to ensure the homogeneous application of the rules by all institutions, it is necessary to issue a normative instruction providing on the matter.

3. The first clarification concerns Article 17 of the aforementioned Resolutions, which prohibits the recognition, in the period's result, of revenue of any nature not yet received relating to a financial asset with credit recovery problems. It is necessary to clarify that this prohibition does not apply to adjustments related to exchange rate variation and fair value assessment, as these are temporary adjustments, which may even be reversed until the settlement of the instrument.

4. Subsequently, the proposal for the normative instruction clarifies that the "drag" rule provided in §§ 5 and 6 of Article 37 of CMN Resolution No. 4,966, of 2021, and BCB Resolution No. 352, of 2023, applies to financial assets classified in the fair value through profit or loss category, except for equity instruments of another entity, for financial assets classified in the fair value through profit or loss category measured at Level 1 of the fair value hierarchy, and for derivative financial instruments, as per current regulation, since, according to Article 1, § 3, of CMN Resolution No. 4,966, of 2021, they are not subject to accounting criteria for the establishment of provisions for expected losses associated with credit risk.

5. Furthermore, it is necessary to clarify that, when applying the provisions of Article 49 of CMN Resolution No. 4,966, of 2021, and BCB Resolution No. 352, of 2023, financial institutions must write off the financial asset in full, and partial write-off is prohibited.

6. Moreover, Normative Instruction BCB No. 464, of April 11, 2024, clarifies the application of the comprehensive methodology for calculating expected losses associated with credit risk; however, regarding the simplified methodology, some financial institutions have questioned the supervision teams of this agency regarding which rate to use, so we propose to clarify that the effective interest rate should be used in the calculation of expected loss. Also regarding Normative Instruction BCB No. 464, of 2024, I suggest incorporating its text into the proposal for the normative instruction, in order to consolidate all clarifications into a single normative act.

7. Also regarding the measurement of provisions for expected losses associated with credit risk, it is worth clarifying that the interest rate used for the purpose of calculating the calculation base for provisions for credit commitments, credits to be released, and financial guarantees provided, as provided in items III, IV, and V of Article 45 of CMN Resolution No. 4,966, of 2021, and Article 45 of BCB Resolution No. 352, of 2023, is the interest rate and other contractual charges of the financial instrument itself, and the use of the rate related to the operation resulting from the use of the commitment, the credit to be released, or the financial guarantee provided is prohibited.

8. Finally, it is worth noting that the provisions addressing the concepts, criteria, and accounting procedures regarding renegotiation, restructuring, and write-off of financial assets provided for in CMN Resolution No. 4,966, of 2021, and BCB Resolution No. 352, of 2023, apply to leasing operations, considering § 2 of Article 2 of CMN Resolution No. 4,975, of December 16, 2021, and BCB Resolution No. 178, of January 19, 2022, according to which references to other pronouncements should be interpreted as reference to other pronouncements of the Committee that have been received by the National Monetary Council, as well as to the provisions of the Accounting Standard of Institutions Regulated by the Central Bank of Brazil (Cosif) that establish accounting criteria related to the aforementioned pronouncements.

9. In compliance with the provisions of Article 5 of Law No. 13,874, of September 20, 2019, Decree No. 10,411, of June 30, 2020, determines that proposals for normative acts of general interest for economic agents formulated by bodies and entities of the direct, autarchic, and foundation federal administration, as well as by collegiate bodies through the body or entity responsible for providing them administrative support, must be preceded by a regulatory impact analysis (RIA).

10. However, as provided in Article 4, item V, letter "b", of this Decree, the obligation to prepare an RIA may be waived for a normative act that aims to preserve the integrity of the financial market. Thus, the normative instruction currently proposed is exempt from the preparation of an RIA.

For your consideration.

UVERLAN RODRIGUES PRIMO
Deputy Head

Agreed.

GILNEU FRANCISCO ASTOLFI VIVAN
Department Head