The Classification of and Provisioning for Bad and Doubtful Debts

Credit risk refers to the danger of late or non-repayment of loans. Financial institutions shall classify their loan outstanding into the five classes such as standard, special mention, sub-standard, doubtful, and loss. The mandatory minimum level of specific provisioning, it depends on the classification concerned such as standard 1 percent, special mention 3 percent,

The classification of and provisioning for bad and doubtful debts:

Credit risk refers to the danger of late or non-repayment of loans. Financial institutions shall classify their loan outstanding into the five classes such as standard, special mention, sub-standard, doubtful, and loss. The mandatory minimum level of specific provisioning, it depends on the classification concerned such as standard 1 percent, special mention 3 percent, substandard 20 percent, doubtful 50 percent and lost 100 percent. The credit classification was classified standard credit when good financial condition and punctual payment of principal and interest, special mention credit when some payments of principal and/or interest are over from 30 days to 90 days, sub-standard credit when some payments of principal and or interest are overdue from 90 days to 180 days, doubtful credit when some payment of principle and or interest are overdue from 180 days to 360 days, and loss credit when some payments of principal and or interest are overdue more than 360 days. The specific provision shall be recorded in the accounts and charge the profit and loss account in the month in which the need is identified. The profit and loss account shall be recorded with accrual basis for its interest to clients.

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