This will ensure the pre-existence of a buffer when such loans slip into non-performing category. However, the working group felt that a forthright increase in such provisioning requirement will adversely impact the balance sheets of the banks and therefore a calibrated approach was adopted to coincide with the two-year transition period given for withdrawal of regulatory forbearance on asset classification.
Now a critical question is whether those two worlds overlap. I am told by those who can still remember, that a fair bit of time was spent trying to marry the short-term macro forecasting models at the Treasury and the RBA with the CGE model of the Institute. Many conferences were held on the issue.