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         VI. Role of Supervisor










 

Sound Practices for Loan Accounting, Credit Risk Disclosure and Related Matters

VI. Role of Supervisor

    1. Banking supervisors should evaluate a bank's policies and practices for assessment of loan quality.

  1. Supervisors should be satisfied that:

    • the quality of the bank's loan review system in identifying, classifying, monitoring and addressing loans with credit quality problems in a timely manner is adequate,
    • appropriate information about the credit quality of the loan portfolio and related allowances is provided to the board of directors and senior management on a regular and timely basis; and
    • management judgement has been exercised in an appropriate manner, is reasonable and respects the considerations discussed in section 2 above.

  2. In making these assessments, supervisors may elect to collect information not publicly disclosed through regular supervisory reporting or through on-site examinations.

    1. Banking supervisors should be satisfied that the methods employed by a bank to calculate allowances produce a reasonable and appropriately conservative valuation in accordance with appropriate policies and procedures.

  3. Supervisors should be satisfied that:

    • the procedures used by a bank to establish allowances on an individual loan basis are prudent and take into account the criteria mentioned in this paper, including updated valuation of collateral and cash flow predictions based on current assessments of economic conditions;
    • the framework for establishing general allowances is adequate and that the methodology used is reasonable.
    • the process used by management in determining the total allowance is adequate and the assumptions and judgements used by management in that process are appropriate;
    • the total allowance is adequate in relation to total credit risk exposure in the loan portfolio;
    • that identified losses have been recognised in a timely and appropriate manner through specific allowances or charge-offs;
    • the bank is following accounting principles and practices consistent with those outlined in this paper.

     

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