2014年-世界发展银行全球_Loan_Classification_and_Provisioning___Current_Practices_in_26_ECA_Countries_42页_1mb

Summary of "Loan Classification and Provisioning: Current Practices in 26 ECA Countries"

Core Content

This working paper provides an overview of the current regulatory and supervisory practices in the area of loan classification and provisioning across 26 European and Central Asian (ECA) countries. The study is based on the World Bank Survey 2011-2012 and desk reviews of publicly available regulations. It aims to enhance understanding of the differences and challenges in comparing NPL (Non Performing Loans) ratios and provisions, and to suggest good practices for aligning prudential frameworks with IFRS (International Financial Reporting Standards).

Main Objectives

1. Analyze the challenges in comparing NPL ratios and provisions across jurisdictions.
2. Explain the interactions between prudential regulations and accounting standards.
3. Share good practices for NPL definitions and propose steps for regional cooperation and harmonization.

Key Findings

A. Asset Classification Systems

• Asset classification systems are commonly used in ECA countries to categorize loans and advances into risk buckets.
• These systems are based on days past due and creditworthiness of the borrower.
• The majority of countries use five buckets: pass/standard, watch/special mention, substandard, doubtful, and loss.
• The minimum days past due for classification as substandard, doubtful, or loss typically range from 30 to 91 days and 150 to 361 days, respectively.
• Home countries (e.g., Austria, Germany) tend to have less prominent asset classification systems compared to host countries (e.g., Albania, Bulgaria).
• Qualitative criteria are increasingly used for early identification of problem assets.

B. Defining Non Performing Loans (NPLs)

• The standard threshold for NPL classification is 90 days past due.
• However, qualitative indicators such as the borrower's financial performance and creditworthiness are also used.
• Some countries include collateral valuation and financial difficulty as additional criteria.
• Grace periods are often granted, meaning the first day past due may not be the actual day of default.
• NPL ratios are generally calculated as total non performing loans over the gross loan portfolio, though some countries use net NPLs (after provisions) or only overdue amounts.
• Exit criteria for NPL classification are often ambiguous, leading to variations in how loans are reclassified.

C. Restructuring or Loan Forbearance

• Restructured or forborne loans are often more risky than performing loans.
• Forbearance is typically defined by changes in contract terms and borrower financial difficulty.
• Not all jurisdictions consider maturity extensions as forbearance unless there is a reduction in cash flows or debt forgiveness.
• Some countries require a track record of payment or a certain period of good performance before allowing an upgrade to performing status.
• About one third of countries allow immediate upgrades after forbearance, while half do not require an assessment of the borrower's creditworthiness before upgrading.

D. Interactions Between Accounting Rules and Prudential Regulations

• Regulatory provisioning is often based on expected losses (EL), which is more forward-looking than IFRS.
• Regulatory provisioning tends to result in higher provisions compared to IFRS.
• Accrued interest on NPLs is not always recorded in the income statement by supervisors.
• Some countries are moving towards accounting-based provisioning, which may involve sophisticated risk models.
• Parallel implementation of accounting and prudential systems is essential during the transition.

Good Practices and Recommendations

• Harmonization of NPL definitions is necessary to improve cross-jurisdiction comparability.
• The European Banking Authority (EBA) has issued draft technical standards on forbearance, which can help in aligning practices.
• Supervisors should ensure that qualitative indicators are used alongside quantitative measures to assess credit risk.
• Monitoring restructuring history and recurrence is important to prevent "ever greening" (restructuring loans to delay classification as NPLs).
• Data collection and benchmarking of internal risk estimates can support regional cooperation and knowledge sharing.

Conclusion

The study highlights the need for more consistent and transparent NPL classification and provisioning practices across ECA countries. It emphasizes the importance of prudential supervision in ensuring the accuracy and reliability of loan quality assessments, and the value of international standards like IFRS in promoting harmonization and transparency. Supervisors are advised to maintain both accounting and prudential systems in parallel during the transition to IFRS-based provisioning.