On classification of loans and off-balance sheet items, this note appears to emphasize too much the quantitative elements such as overdue days as the main benchmark for loan classification. However, many countries are recognizing that loan classification should go beyond these ex post indicators. Many countries currently take into account more forward looking criteria in loan classification, particularly repayment capacity and cashflow of the borrower. In this regard, the note under emphasizes the importance of forward looking qualitative criteria in loan classification.
This note also argues that it will not be advisable to prescribe a set of definitions of NPAs because of the differences in the banking systems of various countries. However, the development and sophistication of a common definition of NPAs would be very beneficial for cross country data comparability.
Inwon Song |
