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      Question

      Under the transitional rules of the Expected Credit Loss

      (ECL) framework starting April 1, 2027, banks are permitted to "add back" a fraction of their additional ECL provisioning to their Common Equity Tier 1 (CET1) capital over a 4-year period to avoid capital shocks. What is the correct tapering sequence of this add-back percentage starting from the financial year 2027-28 down to 2030-31?
      A 100%, 75%, 50%, 25% Correct Answer Incorrect Answer
      B 80%, 60%, 40%, 20% Correct Answer Incorrect Answer
      C 45%, 35%, 25%, 15% Correct Answer Incorrect Answer
      D 50%, 40%, 30%, 20% Correct Answer Incorrect Answer
      E 60%, 45%, 30%, 15% Correct Answer Incorrect Answer

      Solution

      To minimize the immediate negative shock to capital adequacy when moving to ECL, the transitional provisions enable a relief window where the add-back fraction to CET1 capital begins at 80% in year one (2027-28), tapering to 60%, 40%, and finally 20% in the fourth year (2030-31).

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