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  • 1. General Requirements

    • 1.2 Objective of the Rules

      The objectives of these rules are as follows:

      i.To ensure banks put in place a conceptual framework which would facilitate rehabilitation of viable borrower, thereby supporting economic activity.
       
      ii.To ensure banks look into aspects of customer conduct and fair treatment whilst dealing with problem loans, especially in instances involving the MSMEs.
       
      iii.To ensure banks have adequate controls over non-performing and problem loan management and restructuring processes, including documented policies and procedures.
       

    • 1.3 Scope of Implementation

      These rules are applicable for all banks licensed under Banking Control Law.

    • 1.4 Definitions

      The following terms and phrases, where used in these Rules, should have the corresponding meanings, unless the context requires otherwise: 
       
      Problem loans:
             		Loans that display well-defined weaknesses or signs of potential problems. Problem loans should be classified by the banks in accordance with accounting standards, and consistent with relevant regulations, as one or more of:
       
       a)non-performing;
       
       b)subject to restructuring on account of inability to service contractual payments;
       
       c)IFRS 9 Stages 2; and exhibiting signs of significant credit deterioration or Stage 3;
       
       d)under watch-list, early warning or enhanced monitoring measures; or
       
       e)where concerns exist over the future stability of the borrower or on its ability to meet its financial obligations as they fall due.
       
      Non-performing loans:
             		As stipulated in BCBS 403 “Guidelines –Prudential treatment of problem assets – definitions of non-performing exposures and forbearance” endorsed by SAMA through circular no. 381000099757 dated 23/09/1438AH.
       
      Watch-list:
             		Loans that have displayed characteristics of a recent increase in credit risk, and are subject to enhanced monitoring and review by the bank.
       
      Early Warning Signals:
             		Quantitative or qualitative indicators, based on liquidity, profitability, market, collateral and macroeconomic metrics.
       
      Cooperating borrower:
             		A borrower which is actively working with a bank to resolve their problem loan.
       
      Viable borrower:
             		Is that, wherein the loss of any concessions as a result of restructuring, is considered to be lower than the loss borne due to foreclosure.
       
      Viability Assessment:
             		An assessment of borrower’s ability to generate adequate cash flow in order to service outstanding loans.
       
      Covenant:
             		A Borrower’s commitment that certain activities will or will not be carried out.
       
      Key performance indicators:
             		Indicators through which bank management or supervisor can assess the institution’s performance.
       
      Collateral:
             		Are those, whose value can be considered whilst computing the recoverable amount for workout cases or foreclosed cases, on account of meeting the stipulated conditions laid out in these rules, as would be applicable based on the nature of the collateral.
       
      Failed restructuring:
             		Any restructuring case where the borrower failed to repay the revised contractual cash flows as agreed upon with the bank and has transitioned into default.
       
      Further to the above, Banks should adopt all requirements relating to i) Restructuring, ii) Identification of forbearance; iii) Identification of financial difficulty; iv) Identification of concession; and v) Stage allocation for forborne loans, as stipulated under SAMA Rules on Credit Risk Classification and Provisioning.