Basel Core Principles for Effective Banking Supervision (2024) P18: Principle 18: problem exposures, provisions and reserves

The bank has policies, processes and methodologies to grade, classify and monitor all credit exposures (including off-balance sheet and forborne exposures), regularly reviews them individually or by homogeneous portfolio to detect deterioration and identify problem exposures early, and consistently establishes robust provisions, with write-off of exposures where recovery is unlikely or of little value. The board approves and reviews classification, provisioning, problem exposure and write-off policies and oversees them. Provisions and write-offs are timely, reflect realistic repayment and recovery expectations and, where relevant, forward-looking expected losses on reasonable and supportable information, and are reviewed and validated by a function independent of risk-taking. The bank resources the review and classification of exposures, early identification of deterioration, oversight of problem exposures and collection of past-due amounts; documents classification and provisioning; regularly values risk mitigants, with collateral at net realisable value considering market conditions and time to realise; applies the criteria for problem, non-performing (full repayment unlikely or 90 days past due for a material amount, defaulted or credit-impaired), re-performing and forborne status; values, classifies and provisions significant exposures individually against a threshold it reviews; and gives the board timely information on portfolio condition, classification, provisions, major problem exposures, review results, trends and expected losses. The supervisor may require revised methods, reclassification or higher provisions, reserves or capital.