Classification
of credit facilities and how to calculate provisions necessary policy
Home of the most important activities of the
banks is the granting of credit, and therefore its success in retaining good
assets mainly depends on the extent of its success in scaling the risks
associated with the credit portfolio as it may result in non-payment of the
origin of the debt exposure of these institutions and entities related to risk.
And include risks to banks in the area of credit
granting those related to the borrower in terms of his ability to manage his
business and meet its obligations, and risks related to the assurances given
him in terms of their liquefaction in maturity appropriate and the
vulnerability of its market value to fall, and the risks specific to the nature
of the activity the borrower and may be exposed to him that activity of
merchantability or recession, and the risks associated with general economic,
political and social climate, as well as risks related to whether Focus For the
size of credit facilities granted per customer a comprehensive joint
relationship with the parties or granted a productive activity or service, or
those granted to a specific geographic area.
To reduce the effects of these risks, the
supervisory authorities are seeking to put controls credit granting and use and
follow-up, and the extent of concentration and quality guarantees and
information to be met before granting or renewal. Many banks do not envisage
accuracy in assessing the governor credit facilities, and thus works to form
adequate provisions to meet the risks of those portfolios, and at the same time
addressing some of the interest on non-collectible debt as income. And that it
contributes to the achievement of the profits are distributed to shareholders,
while a proper assessment of this debt reveals the lack of a debtor's ability
to repay not only the benefits but also the origin of religion, which leads to
the accumulation of bad debts at these banks. Since it is not configured with
adequate provisions, it exacerbates the problem and not the safety of the
financial situation of those actors. Given the difficulty of taking effective
real-time corrective action, this would be reflected negatively on the raised
by the banking system and then put on the economic situation.
And it includes evaluating the credit risk and
deal with those risks, classification and follow-up dues and arrears. In this
context, it highlights the importance of developing a common basis for
classification of assets and contingent liabilities and provisioning needed to
meet any shortfall in value in order to achieve the adequacy of assets to meet
obligations to the bank.
The main foundations of credit rating, direct
and indirect, and provisioning necessary, which must be followed at all banks,
as follows:
First, it is classified as direct and indirect
facilities in general during periodic intervals not exceeding six months as
facilities regularly, and other irregular.
1. good regular facilities:
Credit facilities are characterized by
stability in the client's commitment to the terms agreed upon when granting
credit that constantly and cash flows into account in providing the necessary
funds to meet the obligations when due, with periodic financial statements and
guarantees sufficient to recover the debt offer.
2.
facilities irregular:
It is divided non-performing facilities into
three main types, at least to be determined based on the availability of
certain terms and conditions as follows:
1.
Without level: the direct and indirect credit facilities that indicates any of
the data related to some caveats that had been repaid at risk and calls for
caution. That, insufficient cash flow to repay Activity client to its
obligations to the bank when due, or that there is a defect in its financial
position, which may be forced to liquidate his bank guarantees to fulfill their
rights.
2.
doubtful: a spin-off of assets and liabilities that are tags results clarified
the above item (1) with a being of a higher degree of risk for example, the
lack of high-quality collateral, or that the client's negative net equity, or
Delays in the payment of premiums and benefits,
including making debt in doubt, raising the likelihood of loss.
3.
The bad: It is characterized by tags results clarified the above item (2) In
addition to the expected recoverable them non-existent or minimal value so that
it is no longer acceptable invoked banking assets even if the probability of
collecting part of it is based.
There are other considerations for
classification can be as reliable as the deterioration of the client mode or a
verdict against him or bankruptcy. These considerations require that you
configure a team or committee within the bank would be responsible for rating
customer accounts even though the conditions were not available irregularity as
referred to above.
Second: It has become necessary to determine
the risk of credit facilities granted by banks for countries in the light of
the steady increase in the volume of international lending government and
semi-government bodies, and that because of the different risks surrounding
whether political, economic or geographic. In this connection, the general
framework for the calculation of allocations needed and required in the case of
a particular country through the system for calculating the MATRIX.
Third, provision is made for the facilities
granted to the clients according to the following rates:
1. Specific provisions:
- Below the level a minimum of 15 per cent.
- Doubtful with a minimum of 45 per cent.
- 100 per cent poor.
2.
General provisions for regular facilities: a minimum of 1 per cent and
accounted for the above-mentioned provisions on the existing balance of net
debt after the exclusion of the corresponding guarantees, in the case of
in-kind or provide bank guarantees high quality and are subject to liquefaction
in Deadlines and meet the legal requirements and interest outstanding, if any.
Fourth: the accounting treatment of interest on
non-performing debt:
It is recorded interest on the debt before the
maturity date of three months and did not pay a creditor in a suspense account,
and so on Addition accounts receivable to customers, but are not Addition on
the profit and loss account. And then treats the account on a cash basis, and
that all the interest due is collected from the date of classification, at
least excluded from revenue.
Fifth: The classification of credit facilities
and provisioning necessary measures:
Banks must examine the classification of credit
facilities and the full composition of the ad hoc necessary. Accordingly, the
banks to be examined and classified 60 per cent of the balances of at least
credit facilities each year. And it must be allocated at regular intervals not
exceeding the end of the composition of the fiscal year, and to be informed of
the outcome of the central bank Examination and classification.
The classification should be continuously and
periodically, and that done by officials from the bank and to present its
findings directly to the Board of Directors or a committee or a pop-up
officials, who do not include the terms of reference of the granting of loans.
It must also include credit files necessary to examine and classify the debt in
a satisfactory manner sufficient data. At a minimum, it should include the
client file the client's request, a study loan, the purpose of the loan and to
approve the granting of the loan and sources of payment and any guarantees
available, and should be evaluated with the importance of the safeguards
provide all the supporting legal documents.
Recommendations:
1. Based on the above, the Commission
recommends the introduction of the following matters with respect to the
classification of credit facilities and calculating the necessary
appropriations.
2. Adopt the principles and rules described in
this paper to be guided by them according to applicable legislation in each
country so that it is on the basis of classification of the credit facilities
portfolio into categories, and then determine the provisions required for each
of these categories, as well as lay the foundations to address the interest
calculated on the debt, and to commit banks and financial institutions the
composition and calculation of benefits provisions in accordance with these
rules and principles.
3. issuing general directives binding for banks
when assessing the credit facilities portfolio that is through an independent
assessment of all those who take the decision to an internal credit committees.
4. Determine the journal data is requested from
banks and uniformly and non-uniformly covering regular and irregular facilities
according to its terms and provisions taken for each of them as well as the
debt that has been written off for the period provided by the statement of
outstanding and commissions.
5. demand from the external auditors examine
the portfolio of credit facilities and provide certified them and the bank
which shows the adequacy of allowances available by the banks configured to
meet doubtful debts Management Certificate.