Bank Loan Classification and Provisioning Practices in by World Bank

By World Bank

This document studies personal loan type and provisioning practices in a extensive pattern of nations that modify in dimension, situation, and point of monetary improvement. The survey carried out for this e-book compares the regulatory ways followed through commercial and rising economies, and is meant to counterpoint different assets of knowledge that spotlight solely on both business or constructing international locations. This record info personal loan classifications and provisioning practices winning within the 23 jurisdictions represented within the Basel center ideas Liaison crew on the finish of 2001. It contains classifications of person and a number of loans, remedy of promises and collateral, financial institution personal loan assessment procedures, personal loan loss provisioning, tax therapy of mortgage loss provisions, disclosure criteria, and exterior auditors' function.

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No No Yes No No No, except for country risk Yes Are general provisions deductible? No Are there limits on such deductions? TABLE 11. TAX DEDUCTIBILITY OF SPECIFIC AND GENERAL PROVISIONS Partly On a case-by-case basis Up to 25 percent of doubtful loans, including interest and capital No No, subject to the control of tax authorities Yesb Yes Yes Yes Yes Yes Russian Federation Saudi Arabia Singapore South Africa Spain WAMU Statistical provisions are not tax-deductible, and generic provisions face restrictions.

B. , losses). c. Nonperforming loans are grouped by decreasing order of risk into bad debts, substandard loans, loans being restructured, and restructured loans. Unsecured loans to borrowers from high-risk countries are treated as nonperforming. Bad debts are claims on insolvent borrowers. Substandard loans are claims on borrowers in temporary difficulty where at least 20 percent of the exposure is more than 6–12 months past due. Loans being restructured are loans where the debtor is indebted to several banks and has applied for consolidation in the previous year.

While many supervisors conduct monthly and quarterly off-site monitoring, there appears to be greater reliance on on-site inspections. While some jurisdictions carryout annual on-site inspections, most jurisdictions offer some flexibility depending on the size of the bank or the circumstances of the economy. In other countries such as the United Kingdom, while supervisory authorities periodically review banks’ manuals, internal controls, operational polices, and credit control and monitoring systems, they may contract with third parties for on-site assessments.

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