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Citizens Financial gives 'Day 2' guidance for higher CECL provisions

Citizens Financial Group Inc. became one of the first banks to deliver specific numeric guidance on ongoing credit loss provisioning under new accounting rules, also known as "Day 2" guidance. The bank forecasts that it would set aside $475 million to $575 million in 2020 on net charge-offs of $475 million to $525 million.

That compares with a $393 million provision in 2019 on $430 million of net charge-offs. The bank's allowance is likely to stabilize at a higher percentage of loans under the current expected credit loss standard, executives said on a call to discuss 2019 fourth-quarter results, with loan categories that do not require substantially higher allowances accounting for a significant proportion of anticipated growth.

Under CECL, banks are required to provision for the expected lifetime loan losses at origination.

Citizens Financial also said it expects the one-time increase to its allowance required by the transition to CECL, or "Day 1 estimate," to be in line with its estimate of 30% to 35%. The new rules went into effect for most publicly traded companies on Jan. 1, 2020.

Vice Chairman and CFO John Woods said CECL is "not the No. 1 issue" the Providence, R.I.-based bank considers when targeting different loan categories for growth.

"It's the economics that we're concerned about," said Chairman, President and CEO Bruce Van Saun. But Van Saun reiterated that Citizens Financial will consider some product changes.

"If there's tweaks that we need to make to certain product offerings that could end up with a better capital treatment, we'll do that," Van Saun said.