Publication: Loan Classification and Provisioning : Current Practices in 26 ECA Countries
Date
2014-08
ISSN
Published
2014-08
Author(s)
Hulster, Katia
Salomao-Garcia, Valeria
Letelier, Raquel
Abstract
This report concerns the Financial
Sector Advisory Centreapos;s (FinSAC) attempt to shed light
on the regulations and practices in the areas of identifying
and provisioning for loans losses in 26 countries in the
Emerging Europe and Central Asia (ECA) region. FinSAC aims
to deliver policy and technical advice and analytical
services to client ECA countries. This reportapos;s analysis
is based on a World Bank Survey conducted from 2011 to 2012
on banking supervision. Even though it is often stated that
Non Performing Loans (NPL) ratios and provisions are not
easily comparable across jurisdictions, NPLs and their
provisions in the European and Central Asian (ECA) region
are frequently charted and analyzed across multiple
jurisdictions. As a result of the lack of harmonized
regulations in this area, concerns regarding the consistency
of loan quality assessments are frequently raised,
particularly with respect to the distinction between
performing and non performing exposures, provisions for non
performing exposures, as well as forbearance definitions.
This overview paper has three main objectives. First, report
analyzes some important considerations that make the
comparison of NPL ratios and provisions across jurisdictions
so challenging. Second, the report explains the interactions
between provisioning frameworks based on prudential
regulations and accounting standards. Third, the report
concludes by sharing some good practices for NPL definitions
useful for prudential supervisors who are considering
aligning their prudential frameworks more closely with
International Financial Reporting Standards (IFRS). The
report also proposes steps for further regional work,
knowledge sharing and harmonization. This will include data
collection and benchmarking of internal risk estimates,
sharing of reviews of the provisioning methodologies and
expected loss calculations applied by the banking groups
active in the region and efforts to further analyze and
harmonize NPL definitions.
Link to Data Set
Citation
“Hulster, Katia; Salomao-Garcia, Valeria; Letelier, Raquel. 2014. Loan Classification and Provisioning : Current Practices in 26 ECA Countries. Financial Sector Advisory Center (FinSAC)
working paper series;. © World Bank Group, Vienna. http://hdl.handle.net/10986/21109 License: CC BY 3.0 IGO.”