Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof23. Credit risk: monthly returnDirectives and interpretations for completion of monthly return concerning credit risk (Form BA 200)Subregulation (22) Credit impairment |
(22) Credit impairment
(a) As a minimum, every bank—
| (i) | shall have in place a sufficiently robust system for the calculation of credit impairment in accordance with the relevant requirements specified in Financial Reporting Standards issued from time to time; |
| (ii) | shall have in place sufficiently robust processes and board-approved policies, and sufficient dedicated resources, to ensure— |
| (A) | the early identification of assets of deteriorating credit quality; |
| (B) | ongoing oversight of problem assets or credit exposure; |
| (C) | that the bank periodically reviews and assesses— |
| (i) | all relevant problem assets at an individual level, or a portfolio level in the case of credit exposures with homogenous characteristics; |
| (ii) | the adequacy of the bank's asset classification, provisioning and write-offs; |
| (iii) | the value, adequacy and enforceability of all relevant risk mitigation instruments or contracts, including guarantees, credit-derivative instruments or other forms of collateral or credit protection; |
| (D) | that all relevant off-balance-sheet exposures are duly considered; |
| (E) | that the bank's credit impairments and write-offs reflect realistic repayment and recovery expectations; |
| (F) | ongoing collection of past due obligations; |
| (G) | that the bank's board of directors receives timely and appropriate information on the condition of the bank's relevant credit portfolios, including the classification of credit exposures, the level of provisioning and major problem assets; |
| (iii) | shall base its decisions in respect of credit impairment primarily on an assessment of the recoverability of individual on-balance-sheet and off-balance-sheet items or portfolios of items with similar characteristics, such as credit card receivables; |
| (iv) | shall identify and recognise impairments in on-balance-sheet and off-balance- sheet items when it is probable that the bank will not be able to collect, or there is no longer a reasonable assurance that the bank will collect, all amounts due according to the contractual terms of the written agreement. |
| (b) | When the Registrar is of the opinion that the policies and procedures applied by a bank during its assessment of asset quality, risk mitigation and related credit impairment are inadequate, the Registrar may require the relevant bank to raise a specified credit impairment amount against potential credit losses, for example, by requiring in writing the said bank to transfer a specified amount from retained earnings or distributable reserves to a non-distributable reserve. |
| (c) | Standardised approach |
A bank that—
| (i) | adopted the standardised approach for the measurement of a portion of its exposure to credit risk shall determine the relevant portion of any general allowance for credit impairment or general loan-loss reserve that relate to the credit exposures measured in terms of the standardised approach, that is, the bank shall allocate its general allowance for credit impairment or general loan-loss reserve on a pro-rata basis based on the proportion of risk-weighted credit exposure subject to the standardised approach; |
| (ii) | makes exclusive use of the standardised approach to determine its risk-weighted credit exposure shall attribute the relevant total amount of general allowance for credit impairment or general loan-loss reserve raised to the standardised approach; |
| (iii) | adopted the standardised approach for the measurement of its exposure to credit risk may include in tier 2 unimpaired reserve funds, up to a maximum amount of 1.25 per cent of the bank's relevant risk-weighted credit exposure, the relevant gross amount of general allowance for credit impairment or general loan-loss reserve. |
| (d) | IRB approach |
| (i) | A bank that— |
| (A) | makes exclusive use of the IRB approach to determine its risk-weighted credit exposure shall attribute to eligible provisions the aggregate amount of any relevant general allowance or general loan-loss reserve raised for credit impairment; |
| (B) | adopted the IRB approach for the measurement of the bank's exposure to credit risk shall deduct from its eligible provisions the aggregate amount relating to expected loss calculated in accordance with the relevant requirements specified in subregulation (21) above, provided that when the aggregate amount relating to expected losses— |
| (i) | exceeds the bank's eligible provisions, the bank shall in accordance with the relevant requirements specified in regulation 38(5) of these Regulations deduct from its capital and reserve funds the said excess amount; |
| (ii) | is less than the bank's eligible provisions, the bank may include in tier 2 unimpaired reserve funds, in item 85 of the form BA 700, up to a maximum amount of 0.6 per cent of the bank's relevant risk weighted exposure amount, or such a lower percentage as may be specified in writing by the Registrar, the relevant surplus amount; |
| (ii) | Subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, a bank that adopted both the standardised approach and the IRB approach for the measurement of the bank's risk-weighted credit exposure may apply the bank's internal methods to allocate any general allowance for credit impairment or general loan-loss reserve for recognition in capital under either the standardised or IRB approach. |