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Moody's: Colombia's new rule on restructured loans credit negative to banks

Colombia's new regulation on restructured loans is credit negative for local banks because it will delay provisioning, Moody's said.

The regulation, published by Colombian financial supervisor Superintendencia Financiera, covers restructured loans that are in the early stages of delinquency or otherwise problematic.

Moody's said a setback in provisioning will weaken loan-loss reserves while banks continue accruing interest and increasing their exposure to the affected loans.

Specifically, a rule which will require banks to not classify reported restructured loans as nonperforming will reduce the transparency of their loan portfolios and understate asset risks.

Meanwhile, a provision aims to contain the increased asset risk by requiring banks to record as restructured all renegotiated loans that subsequently become more than 30 days past due. This will prevent banks from accruing interest and will require them to record higher loan-loss provisions, Moody's said.

In the first half of 2017, the ratio of nonperforming loans to total loans among banks rose 70 basis points to 2.9%.