1.6 Assessing Classification and Impairment of a Group of Loans
No: 241000000312
Date(g): 19/1/2004 | Date(h): 27/11/1424
Status: In-Force
1.6.1
Generally, it is impractical for a bank to analyze and provide for impairment losses for their smaller loans on an individual, Ioan by loan basis, e.g. consumer and credit card loans. For groups of small homogenous loans, the loss attributes should normally be based on available information such as past due status.
1.6.2
For retail and consumer loans, it is difficult or impractical to make an individual assessment, the banks should use the following classification system to classify outstandings on a grouped basis.
1.6.3
Standard Loans. Loans in this category are performing and have sound fundamental characteristic of credit history, cash flow and timely repayment. These are normally represented by current balances with no hint of default.
1.6.4
Special Mention. These loans exhibit potential weaknesses that at a future date may result in deterioration of repayment. These loans are current and up to date but deserve management’s close attention.
1.6.5
Substandard. Loans where any portion of commission income or principal are more than 90 days overdue.
1.6.6
Doubtful Category. Loans where any portion of commission income or principal are more than 180 days overdue.
1.6.7
Loss Category. Loans where any portion of commission income or principal are overdue by more than one year.
1.6.8
For banks that wish to use more sophisticated methodologies based on historical data, there is no single best method for quantifying loss attributes for groups of loans. Acceptable methods range from a simple average of bank’s historical loss experience over a period of years to more complex ‘migration’ analysis techniques. The specific method often depends on the sophistication of a bank’s information system.
