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  • Chapter 6: Asset Quality

    • Loan Review Function of DTFCs

      34.Every DTFC's loan review function shall ensure that:
       
       i.the loan portfolio and lending function conforms to a sound written lending policy, which has been approved and adopted by the board or its delegated authority;
       ii.management and the board are adequately informed regarding credit risk, among other risks and risk management control effectiveness;
       iii.problem accounts are identified properly and on a timely basis and internally classified in accordance with the classification criteria in these regulations; and
       iv.appropriate and adequate level of provisions for potential loss are made and maintained at all times.
       

    • Review and Classification of Loans

      35.Every DTFC shall review, classify and appropriately make provisions for its loan portfolio at least once every three months.
       
      36.Every DTFC shall classify loans and advances in the manner set out in Appendix C to these Regulations.
       
      37.Where a DTFC has granted multiple loans to a single borrower, and any one of such loans is nonperforming, the DTFC shall evaluate every other loan to that borrower and place such loans on non-performing status accordingly.
       

    • Classification of Renegotiated or Restructured Loans

      38.Every DTFC shall classify a renegotiated or restructured loan in the Substandard category unless-
       
       i.all past due principal and profit is repaid in full at the time of renegotiation, in which case it may revert to 'Normal' classification.
       ii.All past due profit is repaid in full at the time of renegotiation in which case it may revert to 'Watch' classification.
       
      39.A renegotiated or restructured loan classified as doubtful or loss shall continue to be classified as doubtful or loss unless -
       
       i.all past due principal and profit is repaid in full at the time of renegotiation, in which case it may revert to 'Watch' classification or;
       ii.all past due profit is repaid in full at the time of renegotiation in which case it may revert to 'Substandard' classification; and
       iii.all past due principal and profit is repaid in full at the time of renegotiation and there has been consistent repayment of three instalments in which case it may revert to 'Normal' classification.
       
      40.No DTFC shall restructure or renegotiate any loan or credit facility more than twice over the life of the original loan or credit facility.
       
      41.Any loan or credit facility restructured for the second time shall be classified as substandard if all past due principal and profit is repaid in full at the time of renegotiation: Provided that if all past due profit is repaid in full at the time of renegotiation, the loan or credit facility shall be classified as doubtful.
       
      42.Where a loan is classified as non- performing every DTFC shall suspend any profit on such loans and advances and - (a) the profit in suspense shall not be treated as income; and (b) all profit in suspense shall be taken into account in the computation of provisions for non-performing accounts; and (c) reverse any profit on non-performing loans or credit facilities accrued into income but uncollected and credit into the profit in suspense account until paid in cash by the borrower.
       
      43.Every DTFC shall ensure that a non-performing loan or credit facility is returned to accrual basis only when all outstanding dues and unpaid obligations have been paid up to date.
       
      44.Every DTFC shall ensure that all profit on nonperforming loan or credit facilities previously accrued into income but uncollected is reversed and credited into the profit in suspense account until paid in cash by the borrower.
       
      45.In determining the amount of potential loss in specific loans or in the aggregate loan portfolio, every DTFC shall be guided by the following minimum provisioning percentages:
       
       i.For loans classified "Normal", 1%;
       ii.For loans classified "Watch", 5%;
       iii.For loans classified "Substandard", 25%;
       iv.For loans classified "Doubtful", 75%; and
       v.For loans classified "Loss", 100%.
       
      46.Where the impairment charges computed under International Financial Reporting Standards (IFRS) are lower than provisions required under these Regulations, the excess provisions shall be treated as an appropriation of retained earnings.
       
      47.Where the impairment charges computed under IFRS are higher than provisions required under these Regulations, the IFRS impairment charges shall be considered adequate for the purposes of these Regulations.
       
      48.The DTFC shall comply with SAMA provisioning rules, requirements specifying regulatory credit risk exposure and any changes thereof.
       

    • Write-Off of Loans

      49.A DTFC shall write-off a loan or a portion of a loan from its balance sheet when-
       
       i.the institution loses control of the contractual rights over the loan;
       ii.all or part of a loan is deemed uncollectible or there is no realistic prospect of recovery;
       iii.the borrower becomes bankrupt; or
       iv.efforts to collect debt are abandoned for any other reason.
       
      50.Every DTFC shall, at least every year, review its assets and make necessary provisions as need arises, if an actual loss of an asset occurs or when the recoverable amount of the asset is less than it's carrying value.
       
      51.Every DTFC shall submit a copy of the review report to SAMA within fifteen business days from the date of review.