## 1blrea2021001 - Preface

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---

### Mission scope and participants
- Evaluation requested by the National Bank of the Republic of Belarus (NBRB).
- Conducted by IMF Monetary and Capital Markets Department (MCM).
- Lead expert: Mr. Javier de la Cruz, MCM short-term expert; visited Minsk during November 4–6, 2019.
- Onsite meetings with: Ms. Alena Mashnina (member of the NBRB Board and Head of Banking Supervision), senior NBRB staff, Governor Kallaur, and private sector participants.
- Purpose: evaluate the latest revision of NBRB’s Instruction 138 on asset classification and provisioning against international prudential benchmarks; provide qualitative comparison with previous regulation and quantitative estimates of the impact of regulatory changes.

### Executive summary — main findings and diagnostics
- Instruction 138 revised in 2018 introduced a new NPL definition (replacing “problem assets”) to promote international comparability as a Financial Soundness Indicator (FSI).
- Reported indicator levels:
  - New NPL indicator: relatively stable around 4 percent.
  - Previous "problem assets" indicator: relatively stable around 13 percent.
- Benchmark: BCBS April 2017 Guidelines on NPLs and forbearance.
- Evaluation methodology: six harmonization features for NPLs and seven for forbearance; ratings: aligned (A), largely aligned (LA), materially non-aligned (MNA), non-aligned (NA).
- Net assessment:
  - NPLs: overall materially non-aligned (MNA). Key negative drivers: harmonized recognition criteria and role of collateralization.
  - Forbearance: overall largely aligned (LA); concept of forbearance rated materially non-aligned (MNA) while classification and discontinuation rated aligned (A).
- Conservatism and practical application:
  - Qualitative and limited quantitative evidence suggests the new Regulation may be a “lighter” requirement than the previous one.
  - Previous Regulation appeared more conservative in practice due to detailed Risk Groups (RGs) concentrating higher-risk exposures in higher RGs.
- Quantitative implication:
  - NPL estimates aligned with BCBS Guidelines would lie between former problem asset levels (~13 percent) and currently reported NPLs (~4 percent).
  - Problem assets are more conservative; current NPLs fall short of international-comparable NPLs.

### Key recommendations (implementation advised within 24 months; selected priority highlights)
- NPL alignment (priority = High unless otherwise stated):
  - Only trading book assets should be excluded from scope; high-credit quality should always be included. — High
  - NPL definition should be directly based on time past due and the unlikely full repayment (UFR) criteria (or on RGs defined under these criteria). — High
  - NPL definition should explicitly consider Contingent Liabilities (CL). — Medium
  - NPL definition should include exposures defaulted under the Basel framework and exposures impaired under the accounting framework. — High
  - Time past due for NPLs should be based on 90 DPDs. — High
  - Eliminate Negative Information (NI); components should be added to time past due or to Financial Imbalance (FI)/UFR criteria per their nature. — High
  - Related-party consideration should not be limited to NI. — High
  - Review FI in depth, incorporating BCBS contents, especially related to UFR and financial analysis. — High
  - FI/UFR should include natural persons via personal wealth and income analysis. — High
  - FI/UFR should be evaluated by severity; different grades should map to different RGs. — High
  - Apply time past due and FI/UFR criteria separately in parallel for asset classification. — High
  - Collateral should not be directly considered for asset classification; high-quality collateral should not be included in RG-I. — High
  - Apply the Regulation at transaction level for retail exposures. — Medium
  - Apply the Regulation at the individual level for economic groups, considering group members’ situations. — Medium
  - Include provisions for NPL reclassification (probation period and checks that exposures are not defaulted or impaired). — High
- Forbearance alignment (priority highlights):
  - Exclude only trading-book assets from forbearance scope. — High
  - Explicitly reflect the two main components of forbearance: Concessions (CS) and Financial Difficulty (FD) in the Regulation. — Medium
  - CS should include changes to other terms and conditions such as interest rates and collateral; consider other options. — High
  - Explicitly reflect the FD concept in the Regulation. — Medium
  - Expand list of CS examples significantly; produce a list of FD examples (for example, based on the FI list). — Medium
  - Do not wait until the third time forbearance is granted before applying considerations; include considerations for the second time. — High

### Structure and coverage of Instruction 138
- Official name: “Instruction 138 on the Procedure for Building Up and Use of Special Reserves for Covering Probable Losses on Assets and Transactions Not Reported on the Balance Sheet by the Banks, Development Bank of the Republic of Belarus JSC, and Nonbank Financial Institutions.”
- Regulation covers both asset classification and loan-loss provisioning (LLP).
- Main parts (chapter headings summarized): general provisions; credit risk assessment (including collateral); classification of assets and special reserves; procedures for use of special reserves; procedures for homogeneous loan portfolios; special portfolio provisions; CL procedures.

### Timeline note
- Latest version issued in December 2017, entering into force on April 1, 2018; the Regulation was originally issued in September 2006 and amended "Twenty-three times, including this latest one." Suffix 505 corresponds to this latest amendment.

---

### Alignment of the Regulation to BCBS Guidelines on NPLs — Major findings
- Scope
  - Regulation largely aligned (LA): includes loans, securities, CL; BCBS excludes trading book.
  - Important difference: high-credit-quality assets and securities should not be excluded; only trading-book securities should be excluded.
- Harmonized recognition criteria
  - Regulation materially non-aligned (MNA): uses time past due and UFR indirectly via Risk Groups (RGs) rather than directly; NPL definition linked to RGs produces a narrow NPL scope.
  - 90 days (DPD) is the usual BCBS reference; Regulation lacks a single direct DPD standard for NPLs because of RG approach.
  - Recommendation: eliminate NI and redistribute its components to DPD and UFR/FI.
- Role of collateralization
  - Regulation non-aligned (NA): collateral directly affects classification (including concept of "high-quality collateral" with LTV/coverage rules), contrary to BCBS which treats collateral only indirectly via UFR and for LLP calculation after classification.
- Level of application
  - Regulation non-aligned (NA): applies RG classification at total exposure level when time past due is applied (article 11) and is silent on economic groups; BCBS requires transaction level for retail and total exposure for nonretail, and individual-level treatment with group considerations.
- Upgrading NPLs to performing
  - Regulation non-aligned (NA): no explicit reclassification provisions; implied automatic reclassification likely omits BCBS-required probation period and non-default/non-impairment checks.
- Interaction with forbearance
  - Regulation aligned (A): establishes backstops preventing forbearance from being used to avoid NPL classification, though not always explicit.
- Overall NPL alignment: materially non-aligned (MNA) — two criteria mostly non-aligned, two non-aligned, one largely aligned, one aligned.

### Specific observations on CL (Contingent Liabilities)
- CL classification treated in parallel to assets for RG and LLP purposes but Regulation does not explicitly state CL as NPLs.
- Chapter 9 links CL classification to asset classification of same counterparty but wording is unclear.
- Recommendation: adopt a single CL-type classification for RGs, apply UFR consistently to CL, and evaluate CL in parallel with assets.

---

### Forbearance — alignment summary and findings
- Harmonization criteria used: scope; level of application; concept of forbearance; examples of FD and CS; classification of forborne exposures; discontinuation of forbearance classification; interaction with NPLs.
- Terminology: Regulation uses “debt restructuring” / “restructured indebtedness”; report uses “forbearance” for comparison.
- Findings by criterion:
  - Scope: largely aligned (LA) — same scope as NPLs.
  - Level of application: aligned (A) — forbearance applied on a transaction basis.
  - Concept of forbearance: materially non-aligned (MNA) — Regulation implicitly contains CS and FD but CS examples limited to dates/maturities; missing explicit reference to interest-rate changes, collateral adjustments, partial forgiveness, conversion to equity.
  - Examples of CS and FD: materially non-aligned (MNA) — Regulation has four CS examples focused on dates/maturities; contains no FD examples; FI examples too limited.
  - Classification of forborne exposures: aligned (A) — Regulation generally requires initial classification as NPLs (restructured exposures assigned to RG-IV–VI).
  - Discontinuation of forbearance classification: aligned (A) — probation period and solvency/NI/FI checks present (12 months probation per article 39).
  - Interaction with NPLs: largely aligned (LA) — Regulation prohibits reclassification to RG-I and adds stricter measures (e.g., prohibition after more than two grants except natural persons and microloans).
- Overall forbearance alignment: largely aligned (LA) by simple average, but important conceptual and example-related shortcomings persist.

---

### Qualitative comparison to previous Regulation (June 2016 → December 2017/April 1, 2018 entry into force)
- General finding: current Regulation has made significant progress toward BCBS alignment by introducing NPL and forbearance frameworks and restructuring rules.
- Main substantive changes:
  - Introduced explicit NPL definition (though limited and RG-based).
  - Replaced undefined “prolonged debt” concept with “debt restructuring” / forbearance framework.
  - Increased granularity: six RGs now (I–VI) instead of five.
  - Introduced “high-quality collateral” concept used to place covered debt into RG-I if not overdue for more than one week.
  - Shortened and summarized guidance for internal procedures, NI and FI definitions streamlined but left many details to banks.
- Net effect: current Regulation generally more benevolent (softer) in practice versus previous Regulation for many exposure types.

### Specific qualitative shifts (selected)
- Legal persons: requirements lowered one grade for current RG-III to -VI; treated more benevolently.
- Legal persons — financial leasing: slightly more benevolent; DPD relaxation (<30 DPD integrated into RG-III).
- Natural persons: slightly more benevolent; situations with fewer than 60 DPD integrated into RG-III (20% provision instead of 30%).
- Microloans: slightly more benevolent; DPD relaxation (<30 DPD into RG-III).
- Banks: slightly more benevolent; banks’ FI integrated into RG-III (20% provision).
- Securities: slightly more benevolent; situations with fewer than 30 DPD and/or FI integrated into RG-III.

---

### Quantitative comparison and key statistics (data limitations noted)
- Data limitations: provided dataset limited; no detailed asset/CL type breakdown; some assets not classified into any RG.
- Noted scope-related quantitative observations:
  - Total assets increased by 12.8 percent when the regulatory change entered into force (May 2018 vs April 2018), despite no major textual scope changes.
  - Relevant amount of assets not classified into any RG ("Other assets") averages about 2 percent of total assets.
- RG composition and totals (BYN Million; monthly series 01/2018–10/2018):
  - Total Assets (BYN Million): 01/2018 43.177; 02/2018 42.850; 03/2018 43.232; 04/2018 43.800; 05/2018 49.402; 06/2018 49.581; 07/2018 49.526; 08/2018 49.692; 09/2018 50.827; 10/2018 52.788
  - RG-I (BYN Million): 24.521; 23.916; 24.699; 24.526; 28.393; 28.488; 28.252; 28.472; 28.601; 30.363
  - RG-II (BYN Million): 12.461; 12.601; 12.234; 12.741; 12.919; 12.671; 12.843; 12.674; 13.554; 13.049
  - RG-III (BYN Million): 4.692; 4.773; 4.639; 4.680; 3.117; 3.290; 3.106; 3.070; 3.221; 3.837
  - RG-IV (BYN Million): 770; 778; 835; 945; 3.020; 2.979; 3.261; 3.362; 3.365; 3.352
  - RG-V (BYN Million): 87; 80; 77; 104; 671; 833; 806; 791; 735; 782
  - RG-VI (BYN Million): -, -, -, -, 368; 398; 219; 148; 156; 129
  - Other assets (BYN Million): 646; 703; 749; 804; 913; 922; 1.038; 1.175; 1.196; 1.275
- RG composition (% of total assets by month):
  - RG-I: 56.8%; 55.8%; 57.1%; 56.0%; 57.5%; 57.5%; 57.0%; 57.3%; 56.3%; 57.5%
  - RG-II: 28.9%; 29.4%; 28.3%; 29.1%; 26.2%; 25.6%; 25.9%; 25.5%; 26.7%; 24.7%
  - RG-III: 10.9%; 11.1%; 10.7%; 10.7%; 6.3%; 6.6%; 6.3%; 6.2%; 6.3%; 7.3%
  - RG-IV: 1.8%; 1.8%; 1.9%; 2.2%; 6.1%; 6.0%; 6.6%; 6.8%; 6.6%; 6.3%
  - RG-V: 0.2%; 0.2%; 0.2%; 0.2%; 1.4%; 1.7%; 1.6%; 1.6%; 1.4%; 1.5%
  - RG-VI: 0.0%; 0.0%; 0.0%; 0.0%; 0.7%; 0.8%; 0.4%; 0.3%; 0.3%; 0.2%
  - Other assets: 1.5%; 1.6%; 1.7%; 1.8%; 1.8%; 1.9%; 2.1%; 2.4%; 2.4%; 2.4%
- Problem assets vs NPLs (time series and composition):
  - Problem assets (previous definition = aggregate RG-III to RG-V) just before change: ~13.1 percent of total assets.
  - NPLs (current definition = RG-V to RG-VI plus restructured debt in RG-IV) just after change: 3.6 percent (May 2018).
  - Time series (Problem assets or NPLs / Total Assets / %):
    - 01/2018: 5.549 / 43.177 / 13.0%
    - 02/2018: 5.631 / 42.850 / 13.4%
    - 03/2018: 5.551 / 43.232 / 13.1%
    - 04/2018: 5.729 / 43.800 / 13.3%
    - 05/2018: 1.743 / 49.402 / 3.6%
    - 06/2018: 1.989 / 49.581 / 4.1%
    - 07/2018: 1.849 / 49.526 / 3.8%
    - 08/2018: 1.922 / 49.692 / 4.0%
    - 09/2018: 2.118 / 50.827 / 4.3%
    - 10/2018: 2.178 / 52.788 / 4.2%
  - Composition of NPLs (BYN Million; 05/2018–10/2018):
    - Restructured debt in RG-IV: 704; 757; 823; 983; 1.228; 1.267
    - RG-V: 671; 833; 806; 791; 735; 782
    - RG-VI: 368; 398; 219; 148; 156; 129
  - Observation: significant part of current NPLs comes from restructured debt in RG-IV, and restructured debt is increasing within RG-IV.
- Provisions (totals and ratios; 01/2018–10/2018):
  - Total Provisions (BYN Million): 2.688; 2.743; 2.735; 2.868; 3.162; 3.285; 3.168; 3.139; 3.189; 3.310
  - Provisioning as % of total assets: 6.2%; 6.4%; 6.3%; 6.5%; 6.4%; 6.6%; 6.4%; 6.3%; 6.3%; 6.3% (average ~6.4%)
  - Provisions not classified into any RG ("Other provisions"): average about 6.7% of total provisions.
  - Provisioning by RG (percentages, examples):
    - RG-I: 0.5% (consistent)
    - RG-II: ~4.0%–4.7%
    - RG-III: 30.0% (earlier) → 20.2% (after change in practice)
    - RG-IV: 50.1% → 30.3% (after change)
    - RG-V: 100.0% → ~50% (after change)
    - RG-VI: 100.0% where applicable
  - Average provisioning for problem assets historically ~34%; average provisioning for NPLs higher but decreasing from >53% to ~42% over the observed months.

---

### Appendix I — selected additional recommendations (implementation advised within 12 months)
- Asset classification:
  - Make asset types for RG classification more representative in quantitative relevance. Priority: High.
  - Align asset types used for general provisions with those used for RG classification (article 5.1). Priority: Medium.
  - Review CL types for RG classification; use article 5.8 division as basis with subdivisions by counterparty. Priority: Medium.
  - Align NPL definition and RG classification; devote most RGs to NPLs with significant provision levels. Priority: High.
  - Include materiality considerations for partial reclassification, correlated exposures within a customer, and economic group exposures. Priority: High.
- LLP:
  - Special reserves should be calculated in same currency as related asset/CL. Priority: Medium.
  - Oblige banks to specify criteria in local regulatory acts for detailed risk-level assessment. Priority: High.
  - Clarify acceptable collateral items and haircuts; require independent appraisals updated regularly. Priority: High.
  - Review division of collateral categories and definition of “high-quality collateral”; use high-quality collateral only for LLP purposes. Priority: High.

---

*Source: Content unit 1blrea2021001 (provided content).*

### Preface ................................................................................................................

### 1blrea2021001 - Preface

### Preface: mission scope and participants
- Evaluation requested by the National Bank of the Republic of Belarus (NBRB).
- Conducted by IMF Monetary and Capital Markets Department (MCM).
- Lead expert: Mr. Javier de la Cruz, MCM short-term expert; visited Minsk during November 4–6, 2019.
- Onsite meetings with: Ms. Alena Mashnina (member of the NBRB Board and Head of Banking Supervision), senior NBRB staff, Governor Kallaur, and private sector participants.
- Purpose: evaluate the latest revision of NBRB’s Instruction 138 on asset classification and provisioning against international prudential benchmarks; provide qualitative comparison with previous regulation and quantitative estimates of the impact of regulatory changes.

### Executive summary: main findings and diagnostics
- The NBRB revised Instruction 138 in 2018, introducing a new NPL definition (replacing the previous “problem assets” category) to promote international comparability as a Financial Soundness Indicator (FSI).
- Reported levels of the new NPL indicator:
  - Relatively stable around 4 percent.
  - Previous "problem assets" indicator was relatively stable around 13 percent.
- Objective: evaluate alignment of Instruction 138 with BCBS April 2017 Guidelines on NPLs and forbearance.
- Evaluation methodology: criteria derived from the BCBS harmonization features for NPLs (six features) and forbearance (seven features); ratings used: aligned, largely aligned, materially non-aligned, non-aligned.
- Overall alignment conclusions:
  - Regulation is materially non-aligned with the BCBS Guidelines on NPLs.
  - For NPLs, Regulation is:
    - Largely aligned on scope.
    - Materially non-aligned on harmonized recognition criteria.
    - Non-aligned on role of collateralization.
    - Non-aligned on level of application.
    - Materially non-aligned on upgrading NPLs to performing loans.
    - Aligned on interaction with forbearance.
  - Regulation is largely aligned with the BCBS Guidelines on forbearance.
  - For forbearance, Regulation is:
    - Largely aligned on scope.
    - Aligned on level of application.
    - Materially non-aligned on the concept of forbearance.
    - Materially non-aligned on examples of Financial Difficulty (FD) and Concessions (CS).
    - Aligned on classification of forborne exposures.
    - Aligned on discontinuation of forbearance classification.
    - Largely aligned on interaction with NPLs.
- Net assessment:
  - NPL alignment: simple average around materially non-aligned; harmonized recognition criteria and role of collateralization are particularly important negative drivers.
  - Forbearance alignment: simple average on largely aligned; categorization and discontinuation rated aligned, but concept of forbearance rated materially non-aligned.
- Comparison with previous regulation:
  - Current Regulation has made significant progress compared to the previous version (June 2016), notably introducing NPL and forbearance concepts and frameworks.
  - Further structuring and integration of asset classification and LLP with the NPL concept is needed to build a robust framework.
- Conservatism and practical application:
  - Qualitative and limited quantitative evidence suggests the new Regulation may be a “lighter” requirement than the previous one.
  - Previous Regulation appeared more conservative in practice due to detailed criteria for Risk Groups (RGs) that concentrated higher-risk exposures in higher RGs.
  - The intended replacement of the "prolonged debt" approach should have reduced conservatism, but professional judgment suggests the prolonged debt approach had limited practical application.
- Quantitative implication:
  - NPL estimates aligned with BCBS Guidelines would lie between the former problem asset levels and the currently reported NPLs.
  - Problem assets would be more conservative; current NPLs fall short of international-comparable NPLs.

### Key recommendations (Table 1 summarized; timing note: recommendations advised to be implemented within 24 months)
- NPL alignment (priority highlights):
  - Only trading book assets should be excluded from scope; high-credit quality should always be included. — High
  - NPL definition should be directly based on time past due and the unlikely full repayment (UFR) criteria (or on RGs defined under these criteria). — High
  - NPL definition should explicitly consider Contingent Liabilities (CL). — Medium
  - NPL definition should include exposures defaulted under the Basel framework and exposures impaired under the accounting framework. — High
  - Time past due for NPLs should be based on 90 DPDs. — High
  - Eliminate Negative Information (NI); components should be added to time past due or to Financial Imbalance (FI)/UFR criteria per their nature. — High
  - Related-party consideration should not be limited to NI. — High
  - Review FI in depth, incorporating BCBS contents, especially related to UFR and financial analysis. — High
  - FI/UFR should include natural persons via personal wealth and income analysis. — High
  - FI/UFR should be evaluated by severity; different grades should map to different RGs. — High
  - Apply time past due and FI/UFR criteria separately in parallel for asset classification. — High
  - Collateral should not be directly considered for asset classification; high-quality collateral should not be included in RG-I. — High
  - Apply the Regulation at transaction level for retail exposures. — Medium
  - Apply the Regulation at the individual level for economic groups, considering group members’ situations. — Medium
  - Include provisions for NPL reclassification (probation period and checks that exposures are not defaulted or impaired). — High
- Forbearance alignment (priority highlights):
  - Exclude only trading-book assets from forbearance scope. — High
  - Explicitly reflect the two main components of forbearance: Concessions (CS) and Financial Difficulty (FD) in the Regulation. — Medium
  - CS should include changes to other terms and conditions such as interest rates and collateral; consider other options. — High
  - Explicitly reflect the FD concept in the Regulation. — Medium
  - Expand list of CS examples significantly; produce a list of FD examples (for example, based on the FI list). — Medium
  - Do not wait until the third time forbearance is granted before applying considerations; include considerations for the second time. — High

### Introduction and methodology (scope and approach)
- Evaluation benchmark: BCBS Guidelines “Prudential treatment of problem assets—definitions of nonperforming exposures and forbearance,” April 2017.
- Methodology conceptually similar to assessment methodologies used for Basel Core Principles and RCAP.
- Two regulatory versions compared: current Instruction 138 (December 2017) and previous version (June 2016).
- Evaluation objectives:
  - Determine progress in alignment with BCBS Guidelines.
  - Assess whether current Regulation is more or less conservative than previous one.
  - Quantify main impacts of regulatory changes and identify shortcomings, with focus on transition from “problem assets” to NPLs and links between them.
- Report structure:
  - Section II: evaluation aspects, scope, and methodology.
  - Sections III–IV: alignment analysis to BCBS Guidelines on NPLs and forbearance.
  - Sections V–VI: qualitative and quantitative comparison to previous Regulation.
  - Five appendixes: additional recommendations; detailed alignment to BCBS on NPLs and forbearance; detailed qualitative and quantitative comparisons.

### Current Regulation: Instruction 138_505 (coverage and main parts)
- Official name: “Instruction 138 on the Procedure for Building Up and Use of Special Reserves for Covering Probable Losses on Assets and Transactions Not Reported on the Balance Sheet by the Banks, Development Bank of the Republic of Belarus JSC, and Nonbank Financial Institutions.”
- Instruction 138 covers both asset classification and loan-loss provisioning (LLP).
- Main parts of the Regulation:
  1. General provisions.
  2. General requirements for credit risk assessment.
  3. Credit risk assessment of the collateral.
  4. Classification of assets exposed to the credit risk and building up the special reserve on assets exposed to the credit risk.
  5. Special aspects of building up the special reserve for covering probable losses on assets exposed to the credit risk.
  6. Procedure for use of the special reserve for covering probable losses on assets exposed to the credit risk.
  7. Procedure of building up and use of the special reserve for covering probable losses on portfolios of homogeneous loans.
  8. Special aspects of building up the reserve for covering probable losses on special portfolios of homogeneous loans.
  9. Procedure for building up and use of special reserves for covering probable losses on Contingent Liabilities (CL).

*Source: Preface and selected sections of the IMF evaluation of NBRB Instruction 138 (content unit: 1blrea2021001 - Preface).*

### 7.      The latest version of this Regulation was issued in December 2017, entering into

### 1blrea2021001 - 7.      The latest version of this Regulation was issued in December 2017, entering into

### International Prudential Benchmarks
- The latest version of this Regulation was issued in December 2017, entering into force on April 1, 2018; it updates the Regulation originally issued in September 2006 and amended "Twenty-three times, including this latest one." Suffix 505 corresponds to this latest amendment.
- There are no commonly accepted international standards for asset classification and LLP; different banks and supervisors often use the same technical terms with significantly different qualitative meanings and quantitative implications (paragraph 8).
- Key contexts where terminology and application differ include: (1) asset quality supervisory monitoring; (2) regulatory capital adequacy; (3) banks’ internal credit risk management; (4) accounting frameworks; (5) financial reporting (public disclosure) frameworks, including FSIs; (6) commercial law and insolvency procedures schemes; and (7) taxation (paragraph 9).
- The BCBS performed limited harmonization on NPLs and forbearance and found no consistent international standards for asset classification and LLP across 28 jurisdictions (the members of the BCBS plus Thailand) (paragraph 10).
- The BCBS clarified that its Guidelines complement, but do not replace, other standards (accounting and capital adequacy). In accounting, "nonperforming loans" is not used in IFRS; in the Basel capital adequacy framework the relevant categories are "past due" and "defaulted" (paragraph 10, referencing paragraphs 75 and 452).

### Scope of the Evaluation
- The alignment evaluation of the Regulation to the BCBS Guidelines is limited to NPLs and forbearance (paragraph 12).
- Some specific recommendations on other asset-classification/LLP concepts are included in Appendix I, though a full analysis of those other concepts is out of scope (paragraph 13).
- The six harmonization features from the BCBS Guidelines used as evaluation criteria are: (1) scope; (2) harmonized recognition criteria; (3) role of collateralization; (4) level of application (nonretail and retail counterparties, banks, and groups); (5) upgrading NPLs to performing; and (6) interaction of forbearance with NPLs (paragraph 14).
- Appendix II contains the full detailed evaluation and a summary table showing the evaluation of NPLs against the BCBS Guidelines (paragraphs 15 and 35).

### Alignment of the Regulation to the BCBS Guidelines on NPLs — Major Findings
A. Scope
- The Regulation is largely aligned with BCBS on scope: BCBS scope for NPLs includes all credit risk-related exposures except trading book; the Regulation includes securities and contingent liabilities (CL) as well as loans (paragraph 16).
- Important differences: high-credit-quality assets and securities should not be excluded from the asset classification/LLP framework but classified into lowest-risk groups; securities excluded should be those in the trading book, not those recorded at fair value (paragraph 16).

B. Harmonized Recognition Criteria
- Both BCBS and the Regulation use time past due and UFR (Unlikeliness to Pay/Uncollectibility) as recognition criteria, but the Regulation applies them indirectly via Risk Groups (RGs) and not clearly or directly (paragraph 17).
- Ninety days is the usual DPD criterion by BCBS and is defined in the Regulation, but the Regulation lacks a single standard DPD for NPLs due to indirect NPL definition via RGs; 90 days remains the usual reference (paragraph 18).
- The Regulation uses "negative information" (NI) as a concept mostly based on DPD; the report recommends eliminating NI and redistributing its concepts between DPD and UFR to prevent overlaps and inconsistencies (paragraph 18).
- The Regulation uses FI (financial indicators) similar to UFR but focused on banks and with a list of minimum factors; FI should be reviewed in depth to align with BCBS UFR guidance and broader legal factors (paragraph 19).
- The Regulation defines six RGs from "standard" to "bad" (RG-I through RG-VI) with Chapter 4 detailing application of recognition criteria to define RGs (paragraphs 20 and 22).
- Despite RG scheme alignment with common practices, NPLs definition is not aligned: many RGs with significant provisions are not classified as NPLs under the Regulation (paragraphs 21 and 23).
- Appendix II uses color-coding (Green performing, Yellow NPLs) to map RGs against BCBS NPLs; NI is excluded from this mapping while FI is treated as equivalent to UFR for the table (paragraph 23).

C. Role of Collateralization
- The Regulation is non-aligned with BCBS on collateral: BCBS says collateral should not directly determine NPL status (only indirectly via UFR), but the Regulation considers collateral directly for asset classification and LLP, including a confusing definition of "high-quality collateral" and special rules if not overdue more than seven days (paragraph 31).
- The Regulation divides transactions into "secured," "under-secured (partially secured)," and "unsecured" and applies different classification requirements to each (paragraph 31).
- The Regulation does not consider indirect effects of collateral on UFR, though BCBS allows collateral to be used to calculate UFR (paragraph 31).

D. Level of Application
- The Regulation is non-aligned with BCBS: BCBS recommends total exposure level for nonretail and transaction level for retail; the Regulation applies RG classification at total exposure level when time past due is applied without differentiating retail vs. nonretail (paragraph 32).
- BCBS advises applying Guidelines at the individual level for economic groups (considering other group members’ status); the Regulation is silent on economic groups, with only some related-party mentions in the NI context (paragraph 32).

E. Upgrading NPLs to Performing
- The Regulation is non-aligned: it contains no provisions related to NPL reclassification, implying automatic reclassification that likely omits required BCBS conditions such as a probation period and non-default/non-impairment checks; however, automatic reclassification implies reclassification is at the level required by BCBS (paragraph 33).

F. Interaction with Forbearance
- The Regulation is aligned with BCBS on forbearance interaction: BCBS requires that forbearance not be used to avoid classifying loans as NPLs; the Regulation establishes specific backstops "on a just-in-case basis" though not explicitly describing the restriction (paragraph 34).

G. Evaluation Summary of NPLs
- Overall conclusion: the Regulation is materially non-aligned with the BCBS Guidelines on NPLs (paragraph 35).
- Summary of criterion-level assessments: two criteria evaluated as mostly non-aligned, two as non-aligned, one as largely aligned, and one as aligned; simple average places overall alignment as materially non-aligned, corroborated by the relative importance of harmonized recognition criteria, scope, and role of collateralization (paragraph 35).
- Appendix II provides a summary table and detailed evaluation to facilitate identification of differences and implementation of amendments (paragraphs 15 and 35).

- Additional observations on contingent liabilities (CL):
  - CL classification is parallel to assets for RG and LLP purposes, but the Regulation does not explicitly address CL as potential NPLs; Chapter 9 details CL application of recognition criteria and links CL classification to asset classification of the same counterparty, though wording is unclear (paragraphs 25–26).
  - The mission recommends using a single CL-type classification for all RGs based on basic nature and ease of linkage to balance sheet/business categories; Appendix II summarizes CL recognition-criteria mappings using the same color scheme and treatment of NI and FI as for assets (paragraphs 27–29).

- Final assessment: material non-alignment driven chiefly by unclear and indirect use of harmonized recognition criteria (time past due and UFR/FI), restrictive NPL definition tied to RGs (excluding some high-provision RGs), direct use of collateralization in classification, and lack of differentiation by retail vs. nonretail exposures (paragraphs 30 and 35).

*Source: 1blrea2021001 - 7.      The latest version of this Regulation was issued in December 2017, entering into*

### 36.      The seven main harmonization criteria established by the BCBS in the context of

### 36.      The seven main harmonization criteria established by the BCBS in the context of

### Overview
- The seven main harmonization criteria proposed in the BCBS Guidelines for forbearance are: (1) scope; (2) level of application; (3) concept of forbearance; (4) examples of financial difficulty and concessions; (5) classification of forbearance exposures; (6) discontinuation of the forbearance classification; and (7) interaction of forbearance with NPLs.
- The Regulation uses terminology common in many countries: it does not use the term “forbearance,” but “debt restructuring” or “restructured indebtedness.” The report uses the term “forbearance” for comparison purposes.
- Appendix III contains the detailed evaluation of the alignment of the current Regulation with forbearance in the BCBS Guidelines.

### A. Scope
- Conclusion: the scope used for forbearance purposes in the BCBS Guidelines is the same as for NPL purposes; the Regulation is largely aligned with the BCBS Guidelines on scope.
- Conclusion sentence: "The conclusion for scope is that it is the same for NPLs as it is for forbearance."

### B. Level of Application
- Both the BCBS Guidelines and the Regulation, even if implicitly, establish that forbearance should be applied on a transaction basis.
- Conclusion: the Regulation is aligned with the BCBS Guidelines on the forbearance level of application.

### C. Concept of Forbearance
- BCBS definition: forbearance is CS granted to a counterparty for reasons of FD that would not otherwise be considered by the lender.
- Regulation definition: “forbearance” as the modification of terms and conditions of a contract to facilitate full and due repayment of the debt that would not be possible under different circumstances.
- Assessment:
  - The Regulation contains the two main components of the BCBS definition, concessions (CS) and financial difficulty (FD), although in an implicit form.
  - The Regulation is materially non-aligned with the BCBS Guidelines on the forbearance concept.
  - The Regulation should include, in the case of CS, changes to terms and conditions other than dates and maturities, especially regarding interest rates and collateral.
  - Other possibilities (partially condoning the debt, conversion of debt into equity) are not considered at all.

### D. Examples of Concessions and Financial Difficulty
- BCBS: provides 11 detailed examples of CS and seven detailed examples of FD.
- Regulation: contains four examples of CS, all focused on dates and maturities; does not contain any example related to FD and those related to FI are too limited.
- Assessment: the Regulation is materially non-aligned with the BCBS Guidelines regarding forbearance examples.

### E. Classification of Forborne Exposures
- BCBS Guidelines: forbearance exposures can be included in the performing or NPLs category.
- Regulation: establishes, even if indirectly, that forbearance exposures shall be initially classified as NPLs; allows reclassification as performing.
- Conclusion: the Regulation is aligned with the BCBS Guidelines regarding categorization of forbearance exposures.

### F. Discontinuation of the Forbearance Classification
- BCBS requires two criteria to cease being used as forbearance: a probation period and a solvency test.
- Regulation has similar requirements: a probation period and no NI or FI.
- Conclusion: the Regulation is aligned with the BCBS Guidelines regarding discontinuation.

### G. Interaction of Forbearance with NPLs
- BCBS: banks should not use forbearance to avoid classifying loans as NPLs; forbearance may be granted on performing exposures or NPLs, with outcomes determined by circumstances; banks should pay particular attention when forbearance is granted more than once; continuous repayment period for NPLs and the probation period for forbearance can run concurrently.
- Regulation:
  - Not explicit that forbearance should not be used to avoid NPL classification, but establishes specific backstops "on a just-in-case basis."
  - Forbearance may be granted on a performing exposure or an NPL, but it has to be classified as an NPL in any case.
  - Prohibits reclassification of forbearance exposures when forbearance has been granted more than twice, except in the case of natural persons and microloans.
  - There is no probation period for NPLs in the Regulation, only for forbearance exposures.
- Assessment: the Regulation is largely aligned with the BCBS Guidelines regarding interaction of forbearance with NPLs.

### H. Evaluation Summary of Forbearance
- Summary evaluation: largely aligned.
- Breakdown:
  - Three criteria evaluated as aligned.
  - Two criteria evaluated as largely aligned.
  - Two criteria evaluated as materially non-aligned.
- Overall placement: simple average on largely aligned.
- Importance note: relative importance of criteria—classification of forbearance exposures and discontinuation of the forbearance classification rated as aligned; forbearance concept rated as materially non-aligned.
- Appendix III: provides a summary table on the evaluation of the Regulation against the BCBS Guidelines.

### V. QUALITATIVE COMPARISON TO THE PREVIOUS REGULATION — Main changes
- Many changes between the previous Regulation (issued in June 2016) and the current Regulation; some purely formal, some substantial.
- General finding: compared to the previous version, the current Regulation has made significant progress regarding alignment with the BCBS Guidelines.
- Appendix IV: provides details of the qualitative comparison and summary tables of main changes regarding NPLs and forbearance.

### Analysis of changes to RGs definitions
- To compare RGs between versions, a detailed RGs definition table for assets in the previous Regulation (until April 2018) is built (provided in Appendix IV).
- Heterogeneity issues complicating comparison: number of RGs, the term “prolonged debt,” and the types of assets.
- Observations:
  - The new RG is a subdivision of the former RG-II.
  - “Prolonged debt” is not defined and was used with time past due-related criteria; replaced by the debt restructuring framework.
  - Problem assets in the previous Regulation correspond primarily to RG-III to RG-V in BCBS terms.
  - Only four cases allow direct comparison of asset types between the previous and current Regulations; four cases need aggregation/disaggregation; five cases have no correspondence.
- Detailed comparison conclusions (current versus previous):
  - Current Regulation generally more benevolent than the previous one.
  - Specifics:
    1. Legal persons are treated more benevolently: requirements lowered one grade for current RGs-III to -VI.
    2. Legal persons–financial leasing treated slightly more benevolently.
    3. Natural persons treated slightly more benevolently: situations with fewer than 60 DPD now integrated into RG-III (lower provisions).
    4. Microloans treated slightly more benevolently.
    5. Banks treated slightly more benevolently.
    6. Securities treated slightly more benevolently: situations with fewer than 30 DPD and/or FI now integrated in RG-III.
    7. Other active transactions treated more benevolently.
    8. Other circumstances treated more benevolently: number of cases to be included in the worst RG substantially reduced.
- Two additional comments:
  - Replacement of the prolonged debt scheme with the debt restructuring framework resulted in a more aligned regulation to the BCBS Guidelines on forbearance; this change moved forbearance exposures to RGs with higher risk and related provisions levels.
  - Cannot perform the same analysis for CL because types of CL differ across versions.

### VI. QUANTITATIVE COMPARISON TO THE PREVIOUS REGULATION — Key findings and limitations
- Main objective: identify the most relevant quantitative changes; analysis subject to significant limitations regarding data availability.
- Data limitations: provided data set is quite limited; no detailed information about the type of assets and CL and their use in asset classification and LLP processes.
- Two important scope-related issues identified:
  1. Total assets increased quite significantly (to    12.8 percent) once the regulatory change entered into force, even though no major changes in scope.
  2. A relevant amount of assets not classified into any RG (may correspond to CL but should be distributed into different RGs).
- A. Composition in Terms of RGs:
  - Relative importance of each RG is stable before and after the change.
  - Distribution of exposures changed significantly when the current Regulation entered into force.
  - Comparison requires realignment because previous RG-II divided into current RG-II and RG-III.
  - Changes confirm new Regulation is softer than the previous one.
  - Current RG-II and RG-III aggregate amount represents significantly more than the amount of the previous RG-II.
  - Importance of RG-I also increases significantly; previous RG-III transformed into current RG-IV decreased.
- B. Problem Assets Versus NPLs:
  - Problem assets were about 13 percent, while NPLs levels are now much lower, about 4 percent.
  - Significant part of NPLs comes from restructured debt classified into RG-IV; restructured debt represents a significant and increasing part of RG-IV.
- C. Provisions:
  - Provisioning percentages are stable and have not been affected by regulatory changes, representing an average 6.4 percent of the total assets.
  - There is a relevant amount of provisions not classified into any RG.
  - Provisioning levels per RG are stable and close to minimum regulatory values, both before and after changes.
  - The average provisioning for total assets remains coincidentally stable after the regulatory change due to the emergence of the new provisioning percentage of 30 percent for RG-III.
  - Average provisioning levels of problem assets were stable, around 34 percent.
  - Average provisions for NPLs are higher but significantly decreasing, from more than 53 percent to almost 42 percent.
  - Current NPLs are characterized as a kind of problem assets with higher credit risk and provisioning.
- Appendix V: contains the full details of the quantitative evaluation.

### Appendix I. Additional Recommendations (selected highlights)
- Implementation timing note: "These recommendations are advised to be implemented within 12 months."
- Asset classification recommendations (Priority):
  - The asset types used for RG classification purposes (Chapter 4, articles 30–38) should be more representative in terms of quantitative relevance. Priority: High.
  - The asset types used in the general provisions section (article 5.1) should be exactly the same as those used for RG classification purposes. Priority: Medium.
  - The CL types used for RG classification purposes (Chapter 9, articles 69–74) should be reviewed; division in 5.8 could be used followed by subdivisions by counterparty. Priority: Medium.
  - The NPLs definition and the RG classification should be more aligned, with most RGs devoted to NPLs and significant provisions levels related to them. Priority: High.
  - Materiality considerations for partial reclassification, correlated exposures within a customer, and exposures of economic group members. Priority: High.
- LLP recommendations (Priority):
  - Special reserves should always be calculated in the same currency as the related asset or contingent liability. Priority: Medium.
  - Change article 16 so banks are obliged to specify criteria in local regulatory legal acts to provide detailed risk level assessment for assets and CL. Priority: High.
  - Clarify acceptable items as collateral and haircuts; require independent appraisals updated regularly. Priority: High.
  - Review division of collateral into “secured,” “under-secured,” and “unsecured”; integrate “secured” and “under-secured” for LLP purposes. Priority: High.
  - Review definition of “high-quality collateral” to clarify confusing aspects; high-quality collateral should be used just for LLP purposes. Priority: High.

### Appendix II. Alignment to the BCBS Guidelines on NPLs
- The six harmonization features established by the BCBS for NPLs are: (1) scope; (2) harmonized recognition criteria; (3) role of collateralization; (4) level of application (nonretail and retail counterparties, banks, and groups); (5) upgrading to performing loans; and (6) interaction of forbearance with NPLs.

*Source: 1blrea2021001 - 36.      The seven main harmonization criteria established by the BCBS in the context of (excerpt).*

### 2.      The BCBS scope for NPLs is not limited  to loans, including  all credit risk-related

### 1blrea2021001 - 2.      The BCBS scope for NPLs is not limited  to loans, including  all credit risk-related exposures except those forming part of the trading book

### Scope for NPLs: BCBS Guidelines and the Regulation
- BCBS Guidelines apply the NPL definition to:
  - on-balance sheet loans;
  - debt securities;
  - other amounts due included in the banking book for Basel II capital adequacy purposes such as interest and fees;
  - off-balance sheet items such as loan commitments and financial guarantees.
- Exposures included in the trading book or treated as derivatives are excluded from the BCBS NPL scope.
- The Regulation’s scope is broader than loans and explicitly includes:
  - “assets exposed to the credit risks” and “CL” (contingent liabilities) (article 2);
  - securities as a type of “assets exposed to the credit risks” (article 5.1) and their classification in Chapter 4 into RGs;
  - a definition of “CL” in article 5.8, classifying them into financing obligations, guarantees, and other CL.
- Article 3 exclusions (the Regulation shall not be applied to):
  - (1) obligations to provide money as loans;
  - (2) redeemed securities issued by the bank;
  - (3) securities of the Government of the Republic of Belarus, the NBRB, governments and central banks of countries of the group A, banks of the group A, international financial institutions, and development banks (except when securities are classified as encumbered assets);
  - (4) funds allocated to the NBRB;
  - (5) shares;
  - (6) securities recorded at fair value;
  - (7) CL related to the activities for provision of own needs.
- Article 15 states asset classification and LLP shall not be carried out in five other particular cases (not detailed in the source).
- Observations:
  - High-credit quality assets and securities should be included in the asset classification/LLP framework but classified into the lowest-risk groups and remain subject to potential deterioration and reclassification (including time past due criteria).
  - Securities recorded at fair value should not be excluded from the Regulation scope solely because of fair-value accounting; securities included in the trading book should be excluded to align with BCBS.

### Alignment assessment: BCBS Guidelines vs Regulation
- Conclusion drawn in the text:
  - The Regulation is largely aligned with the BCBS Guidelines within the scope for NPLs.
  - Some differences related to securities exist and "should be eliminated to ensure full alignment," but they are not judged material enough to change the assessment from "largely aligned."
  - The Regulation examines loans, securities, and CL.

### Harmonized recognition criteria: time past due and UFR
- BCBS harmonized recognition criteria:
  - time past due (most traditional and objective);
  - Unlikeliness to Pay (UFR) (relatively modern and more subjective).
- Application notes:
  - Time past due tends to be more homogeneously applied in practice than UFR.
  - The Regulation uses both criteria, though not always clearly or directly.
  - Banks are required to evaluate debtor repayment capability via analysis of cash flows, indicators characterizing activities, and other factors (article 18).
  - The Regulation references NI (negative information) and FI (financial imbalance) but does not define them; article 19 establishes minimum cases for NI and article 20 for FI, leaving detailed definitions to banks.
  - NI is mostly based on DPD; FI is related to financial situation evaluation and thus to UFR.
  - DPD are extensively used to classify assets into different RGs.

### Definition of NPLs in the Regulation and critique
- The Regulation defines NPLs indirectly via Risk Groups (RGs) (article 31):
  - “assets exposed to the credit risk and assigned to the risk groups V and VI as well as the restructured indebtedness assigned to the risk groups IV–VI shall be considered as nonperforming assets.”
- Criticisms and observations:
  - NPLs are not defined directly by recognition criteria (DPD or UFR) but indirectly by RGs, and the term NPL appears just once in the Regulation.
  - There is no equivalent CL definition in the corresponding section, though reported NPLs likely include both assets and CL in practice.
  - Recommendation: define NPLs directly or indirectly in terms of the two recognition criteria (time past due and UFR), or define RGs directly on those two criteria (e.g., RGs defined in terms of DPD>90 days and UFR).
  - The Regulation’s RG-based NPL definition seems too restrictive because some RGs with high provisioning are excluded:
    - RG-III’s provisioning range is 20 percent to 30 percent;
    - RG-IV’s provisioning range is 30–50 percent.
  - Even taking the lowest values (20 percent and 30 percent), these provisioning levels are typical of NPLs, suggesting the Regulation’s NPL definition is narrow.
  - The inclusion of restructured indebtedness from RG-IV in NPLs does not sufficiently address this narrowness.

### Time past-due criterion: practice and the Regulation
- Common practice:
  - Ninety days is the usual DPD standard for NPL determination.
  - Debts overdue for periods shorter than 90 days are generally considered almost fully recoverable.
  - After larger DPD thresholds (usually 180 or 365 days), debts are often treated as practically irrecoverable and fully provisioned or written off.
  - LLP under the time-past-due criterion typically ranges from 0 percent for performing assets (0–89 DPD) to 25 percent to 100 percent for NPLs (from 90 DPD to 180 or 365 DPD, with graduated provisions).
- Variations by debt type:
  - Some debt types use different DPD thresholds for NPL/LLP purposes (retail transactions: 90 DPD may be too late for consumer credits, too early for first residence mortgages).
- BCBS Guidelines:
  - Consider 90 days the standard DPD for NPLs, applied to all exposure types within scope (including real estate-secured and public-sector exposures).
  - The 90-day standard is supplemented by consideration of unlikeliness to pay and emphasizes financial analysis.
- The Regulation:
  - Does not set a standard DPD for NPLs directly due to its RG-based approach; however, 90 days is the usual reference.
  - Minimum DPD required for RG-V (the RG with the lowest risk classified as NPLs) is 90 in eight out of 12 cases.
- Negative information (NI) in the Regulation (article 19) — minimum cases prescribed:
  - (1) overdue interests and fees from a legal entity (including a bank) for a period of 8–30 days;
  - (2) overdue interests and fees from a natural person (including a bank) for a period longer than 30 days;
  - (3) overdue debt from related parties during the same periods;
  - (4) decisions by competent agencies to suspend transactions with debtors’ accounts;
  - (5) banks of the group C according to their credit ratings.
- Observations about NI:
  - Most NI cases correspond to interest and fees DPD well under 90 days.
  - The last two NI cases are closer to UFR; only those might play a role in defining NPLs in international terms, but their quantitative role is likely modest.

*Source: 1blrea2021001 - 2.      The BCBS scope for NPLs is not limited  to loans, including  all credit risk-related exposures except those forming part of the trading book*

### 18.      It is suggested to eliminate the NI concept and distribute its current concepts

### 1blrea2021001 - 18.      It is suggested to eliminate the NI concept and distribute its current concepts

### Recommendation to eliminate NI and redistribute components
- It is suggested to eliminate the NI concept and incorporate those components:
  - components based on DPD to the time past due criterion; and
  - components related to the financial situation to the UFR criterion.
- The related parties component scope should be broadened and not just focused on the current specific aspects.

### UFR (Unlikeliness to Pay) criterion
- UFR is an independent criterion that complements the time past due criterion.
- UFR means that it is unlikely that the debt will be fully repaid without realization of collateral or other risk mitigants, regardless of the debt not being past due or past due for fewer than 90 days (DPD < 90 days).
- Basel II (BCBS) provides examples of possible indicators of UFR (paragraph 453).
- UFR is mostly based on analysis of the financial situation of the debtor, although no specific guidance is provided by the BCBS.
- UFR can be evaluated through a comprehensive analysis of the financial situation of the counterparty, using all available inputs.
- The BCBS suggests three examples of inputs for UFR assessment:
  - patterns of payment behaviors in past circumstances;
  - new facts that change the counterparty’s situation; and
  - financial analysis.
- BCBS Guidelines do not provide an exhaustive list of indicators nor reference values for suggested ratios.

### Financial Imbalance (FI) in the Regulation and its limits
- The Regulation uses a similar concept, financial imbalance (FI), with minimum cases mostly related to the financial situation of the debtor, especially for banks.
- Article 20 of the Regulation establishes the following minimum cases for FI:
  1. a debtor, except another bank, has a negative net asset value;
  2. overdue payments of interests, commissions, and other similar remunerations for more than 30 days;
  3. indebtedness written off by a bank to off-balance sheet accounts if this indebtedness is overdue;
  4. not enough information is available to evaluate the financial position of the debtor;
  5. a counterparty bank (except for an intergovernmental bank or a development bank) fails to meet regulatory requirements including those related to capital adequacy and liquidity;
  6. a bank classified into the group D in accordance with international credit ratings; and
  7. suspension or termination of licenses for banking activity (special rules for some legal entities, individual entrepreneurs, natural persons, and microloans).
- Assessment notes:
  - Given the list, FI is unlikely to play a significant role in the NPLs definition in international terms unless FI is reviewed in depth: three of the seven minimum factors are related to banks, two to time past due considerations, and one to incomplete information, leaving only one focused on the financial situation of nonbank debtors.
  - The single nonbank financial-situation factor is limited to negative net asset value.
  - Natural persons are not effectively captured by FI in practice (FI is never a criterion to classify debts of natural persons into the different RGs).

### Suggested review and legal factors
- The review of FI should follow BCBS Guidelines content, especially regarding UFR and financial analysis.
- Legal-side factors commonly used internationally reflect UFR in legal terms (legal processes to declare debtor bankrupt or insolvent). BCBS mentions bankruptcy/insolvency processes as an example (paragraph 453, footnote).
- The Regulation explicitly treats two legal situations for classification into RG-VI (100 percent provision): bankruptcy and force majeure (article 37, points 10 and 11):
  - 37.10: indebtedness on assets exposed to credit risk for debtors with bankruptcy proceedings initiated against them, or debtors declared insolvent (bankrupt), with liquidation proceedings initiated;
  - 37.11: indebtedness on assets exposed to credit risk subject to occurrence of force majeure circumstances stipulated in the contract and inflicting damage preventing further operation.

### Application of recognition criteria to assets and RGs
- Chapter 4 (Articles 30–38) contains detailed provisions for applying recognition criteria to define Risk Groups (RGs).
- Article 31 defines NPLs as exposures in RG-V and RG-VI and restructured exposures classified into RG-IV.
- There are six RGs with provisions (in percent):
  - I Standard 0.5–2
  - II Supervised 5–20
  - III 20–30
  - IV 30–50
  - V Doubtful 50–100
  - VI Bad 100
- Observations on RGs and provisions:
  - The RGs scheme aligns broadly with international practice (five or six RGs) but the distribution of provisions is concentrated in higher extremes (four of six RGs require provisions not lower than 20 percent).
  - International practice often shows more uniform distribution of provisions (about 25, 50, 75, and 100 percent) than the Regulation’s 20, 30, 50, and 100 percent.
  - The definition of NPLs is less aligned internationally because RG-I to RG-III and parts of RG-IV are classified as performing even though RG-III and RG-IV have significant provisions (from 20–50 percent in theory and from 20–30 percent in practice).

### Asset-type classification and recommendations
- The Regulation lacks a single asset-type classification for RGs and LLP purposes; asset types are mentioned across articles 32–37 in different contexts (DPD, NI, FI, collateral), producing casuistic treatment.
- Suggested improvements:
  - Adopt a single asset-type classification for all RGs, based on relative importance of each type and linkable to balance sheet or business categories to facilitate interpretation, application, and monitoring.
- Types of assets used for RGs classification purposes (as summarized from articles 32–37) include:
  - Assets with high-quality collateral
  - Legal persons (including individual entrepreneurs): loans except microloans, assignment of the right of a monetary claim or alienation of assets and factoring
  - Legal persons – financial leasing
  - Natural persons – loans, financial leasing and factoring
  - Microloans
  - Banks
  - Securities
  - Fulfillment of obligations by the Bank instead of third parties
  - Provision of an advance in payment for goods, works, and services (commercial loans)
  - Other active transactions
  - Other circumstances
- In mapping recognition criteria for RG definitions, the analysis uses DPD thresholds and FI (treated as equivalent to UFR), and does not consider collateral per BCBS recommendations in the simplified mapping:
  - Cases considered equivalent to NPLs per BCBS terms are: (1) DPD longer than 90 days; and (2) presence of FI.
  - Note: assets with high-quality collateral and fewer than seven DPD were treated as performing for simplicity, acknowledging rare cases where UFR could still apply.

*Source: 1blrea2021001 - 18.      It is suggested to eliminate the NI concept and distribute its current concepts*

### 35.      As it can be observed, the contents of RG-V and -VI practically correspond to NPLs,

### 1blrea2021001 - 35.      As it can be observed, the contents of RG-V and -VI practically correspond to NPLs,

### Classification mapping between Regulation RGs and BCBS NPL definition
- RG numeric bands explicitly cited:
  - I (0.5–2%)
  - II (5–20%)
  - III (20–30%)
  - IV (30–50%)
  - V (50–100%)
  - VI (100%)
- Time past due (DPD) thresholds used in the Regulation (as in table structure):
  - O (days overdue / DPD): <= 7, 7 < O <= 30, 30 < O <= 90, 90 < O <= 180, O > 180
  - Fulfillment date F: F <= 30, 30 < F <= 90, 90 < F <= 180, F > 180 (with ST/PT/UT distinctions)
- Key mapping observations:
  - Contents of RG-V and RG-VI practically correspond to NPLs according to the BCBS Guidelines in most cases because of the time past due criterion and the existence of DPD longer that 90 days.
  - With just three exceptions, the contents of RG-V and -VI for assets were based on the application of the time past due criterion and the existence of DPD longer that 90 days.
  - The rest of NPLs (per BCBS Guidelines) arise from the existence of FI and are classified into RG-II to RG-IV in the Regulation; these are not considered NPLs under the Regulation, apart from RG-IV restructured debt.
  - FI is used to classify assets into RG-II to RG-IV with no clear, consistent pattern; differential appears to be the amount of DPD simultaneously required (from fewer than seven in RG-III to fewer than 30 in RG-IV).

### Roles of FI, NI, collateral, and DPD in classification (observations and problems)
- FI (financial imbalance) considerations:
  - FI is only considered for banks and other legal persons, not for natural persons (detailed criteria in articles 32–37 consider FI only for banks and other legal persons).
  - FI is treated in practice as an intermediate situation between short and long DPD and not considered separately from DPD but as a complement to it.
  - FI/UFR is equivalent to UFR in the CL context (see later sections).
  - RG-III contains cases of FI that would be NPLs under BCBS, but RG-III is not treated as NPLs in the Regulation.
- NI (negative indicators) and collateral:
  - NI is used as an early indicator mainly for RG-II and RG-III, but its simultaneous consideration with collateral and DPD overcomplicates the framework and produces inconsistencies.
  - Collateral is mostly used for legal persons and is combined with secured (ST), partially secured (PT), and unsecured (UT) categories in a confusing way together with DPD, NI, and FI, causing inconsistent classifications.
- Consequences:
  - A significant number of exposures that would be NPLs under BCBS are not recognized as such by the Regulation because of the mixed application of DPD, FI, NI, and collateral.
  - Natural persons are largely excluded from FI considerations (ostensibly because they do not produce financial statements), which prevents some exposures from being treated as NPLs even though personal wealth and income analysis could apply.

### Contingent liabilities (CL) treatment and inconsistencies
- Chapter 9 (articles 65–75) addresses application of recognition criteria to CL for RGs definition and LLP purposes.
- CL are considered on a parallel basis to assets for asset classification and LLP purposes, but the Regulation does not explicitly state that CL are considered as NPLs; the NPLs definition mentions just assets.
- Practical treatment:
  - Classification of assets into RG-III to RG-VI due to the DPD criterion determines the classification of the CL of the same counterparty (article 66), though wording is unclear.
  - When assets are in RG-III to RG-VI for reasons other than DPD, article 67 indicates CL shall be classified according to counterparty and CL characteristics — but the referenced articles imply only RG-I to RG-III should be considered in this case, a surprising limitation.
- Types of CL and confusion:
  - The Regulation lacks a single CL type definition; articles 69–74 specify varying CL types and circumstances per RG, mixing DPD, NI, FI, collateral, and the assets of the same counterparty into classification rules.
  - This approach produces inconsistencies and many cases where it is impossible to evaluate whether a CL exposure would be an NPL per BCBS (these ambiguous cases are marked in purple in the referenced Table 5).

### Recommendations and proposed simplifications (policy guidance)
- For assets:
  - To prevent inconsistencies and maintain clarity, consider only DPD and FI for all asset types, on a separate and parallel basis.
  - NI should not be used for asset classification purposes.
  - Collateral should not be used for classification purposes (as explained to be detailed further in the source).
  - Use just DPD (time past due criterion) and FI (UFR criterion in broader terms). Apply DPD and FI/UFR in parallel and separately to all asset types.
  - FI/UFR should not be used to classify assets into a single RG but into several RGs (for example, from RG-I to RG-VI), depending on the severity of the FI/UFR-identified problems.
- For contingent liabilities (CL):
  - Consider CL on a consistent and parallel basis to assets for both asset classification and NPL purposes.
  - CL should be evaluated considering their specific characteristics and the UFR aspects related to the counterparty’s financial situation. If the counterparty is also a debtor, UFR assessment should be consistent and parallel for assets and CL.
  - FI/UFR should not be used to classify assets and/or CL into a single RG but into several RGs depending on severity.
  - It is suggested to use a single CL type classification for all RGs based on basic nature and ease of linking to balance sheet or business categories (use article 5.8 division between financing obligations, guarantees, and other CL as basis, with subdivisions for main counterparty types such as banks, legal persons, natural persons).
  - Consider just UFR for all CL types, applied consistently and in parallel with treatment of assets of the same counterparty.
- Rationale:
  - These simplifications would reduce casuistic approaches, facilitate interpretation, practical application, and monitoring, and reduce the number of cases where NPL status per BCBS cannot be evaluated under the Regulation.

### Specific cross-references and scope notes from the source
- Relevant article ranges cited for assets: articles 32–37.
- Relevant article ranges for CL procedures: articles 65–75; specific RG articles: articles 69–74 (article 70 is an exception covering CL without high-quality collateral).
- Noted table summaries and color-coding in the source:
  - Green: performing exposures per BCBS Guidelines (approximation).
  - Yellow: NPLs per BCBS Guidelines (approximation).
  - Grey: no CL considered for that case.
  - Purple: cases where clear evaluation cannot be made due to generic contents.
- Source author’s elaborations referenced: table summarizing types of CL used for RGs classification purposes and Table 5 (Application of the Recognition Criteria to CL for RGs Definition Purposes (Since April 2018)).

*Source: Author’s elaboration based on the contents of articles 32–37 and articles 65–75 of the Regulation (excerpts provided).*

### 55.      Taking into account other contexts, the BCBS Guidelines also consider “default”

### 1blrea2021001 - 55.      Taking into account other contexts, the BCBS Guidelines also consider “default”

### Definitions and recognition criteria: default, impairment, UFR
- BCBS Guidelines consider “default” according to Basel II and “impairment” in accounting terms; related factors are the same in substance.
- Three formal points in the BCBS Guidelines:
  - Exposures defaulted under the Basel framework (example: paragraph 452 of the Basel II rules and subsequent amendments).
    - Paragraph 452: “a default is considered to have occurred with regard to a particular obligor when either or both of the two following events have taken place: a) the bank considers that the obligor is unlikely to pay its credit obligations to the banking group in full, without recourse by the bank to actions such as realizing security (if held); and b) the obligor is past due more than 90 days on any material credit obligation to the banking group (footnote 89). Overdrafts will be considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than current outstandings.”
    - Footnote 89: for retail and public sector entities, a supervisor may substitute a figure of up to 180 days for different products; in one member country local conditions allow up to 180 days for corporate lending for a transitional period of five years.
  - Exposures that are impaired in accounting terms: “all exposures that are credit-impaired (in the meaning of exposures having experienced a downward adjustment to their valuation due to deterioration of their creditworthiness) according to the applicable accounting framework.”
    - IFRS 9: “impaired exposures” are those considered “credit-impaired” in the meaning of IFRS 9 Appendix A.
    - US GAAP: “impaired exposures” are those for which credit losses are measured under ASC Topic 326 and for which the bank has recorded a partial write-off.
  - The third point contains both the time past due and the Unlikelihood to Fulfil Repayment (UFR) criteria:
    - “. . . all other exposures that are not defaulted or impaired but nevertheless: (a) are material exposures that are more than 90 days past due; or (b) where there is evidence that full repayment based on the contractual terms, original or, when applicable, modified (e.g., repayment of principal and interest) is unlikely without the bank’s realization of collateral, whether or not the exposure is current and regardless of the number of days the exposure is past due.”

### Use of external credit ratings and Regulation references
- The Regulation contains references to ratings by international rating agencies but provides no clear method of how to consider them.
  - Article 4: states that ratings from international rating agencies should be used but does not specify how.
  - Other references (for example, article 20 f)) exist but lack a clear connection; groups A to E in the Regulation may implicitly rely on international credit ratings to define these groups.
- For Instruction purposes: “the rating of a debtor, an issuer of securities ... assigned by international rating agencies and corresponding to the term and currency of the liability, shall be used.”

### Conclusions on harmonized recognition criteria for NPLs
- Overall conclusion: the Regulation is materially non-aligned with the BCBS Guidelines on harmonized recognition criteria for NPLs.
- Key reasons:
  - The Regulation uses time past due and UFR but not in a clear, complete, or direct way.
  - The Regulation’s definition of NPLs is not based on recognition criteria but on risk groups (RGs), and is too restrictive:
    - RGs subject to high provisions (RG-III and RG-IV at least) are not considered NPLs (though restructured debt of RG-IV is considered NPLs).
  - Time past due criterion may determine NPLs in line with BCBS Guidelines, but UFR application often does not.
- Given these shortcomings, the Regulation is considered materially non-aligned regarding harmonized recognition criteria for NPLs.

### Role of collateralization
- BCBS Guidelines:
  - Collateral should not be taken into account as a direct factor for NPL determination; assets should be classified regardless of collateral.
  - Collateral may have an indirect impact on UFR because it can influence a borrower’s economic incentive to pay.
  - Collateral should be taken into account after asset classification, when calculating losses and related provisions in the LLP process.
- Regulation approach and issues:
  - For legal entities, the Regulation requires quality and adequacy of collateral to be taken into consideration for credit risk assessment on loans (except microloans), factoring, and other specific cases; collateral must be assessed per transaction (Article 22).
  - The Regulation defines “high-quality collateral” with conditions including:
    - Clause 5.2.1: it covers at least 90 per cent of the principal debt amount.
      - This LTV requirement (LTV > 90 percent) is treated as a quality condition though LTV is quantity-related.
    - Eligible types: pledging of securities and/or guarantees of the Government of the Republic of Belarus or the NBRB, governments/central banks of countries of group A, banks of group A, international financial organizations or development banks; deposits of money; banks’ own securities; insurance provided by a group A company.
    - Clause 5.2.2: refers confusingly to coverage of the residual 10 percent and one-year interests and commissions, and to collateral types in articles 23 and 29.
  - Article 32.1: debt covered by high-quality collateral shall be classified into RG-I if it is not overdue for a period longer than one week.
    - RG-I: lowest risk group, subject to a low provision, 0.5–2 percent (0.5 percent in practice).
    - Practical effect: debt covered by high-quality collateral is practically exempted from being considered NPLs.
    - Article 32.1 explicitly states the existence of NI or FI is irrelevant for this classification.
  - Collateral used to categorize transactions as secured, under-secured (partially secured), and unsecured (Articles 24–27):
    - Secured: collateral fully covers principal and interest/fees for the next year.
    - Under-secured: collateral represents more than 70 percent of the debt’s principal and the interest and fees for the next year, or covers these amounts in full but bank must carry out preliminary legal arrangements.
      - “Over 70 percent must be interpreted as between 70 percent and 100 percent; if collateral represents more than 100 percent, the transaction would be considered secured.”
    - Unsecured: no collateral meeting requirements.
    - Different classification requirements apply by collateral status, with more benevolent treatment for secured transactions and strictest treatment for unsecured transactions.
  - The Regulation does not consider collateral’s indirect effects on UFR:
    - FI is the closest concept to UFR in the Regulation, but collateral is not considered when evaluating FI.
    - Only potential link: high LTV is one of the conditions to consider collateral as high-quality collateral (i.e., link in the opposite direction).
- Conclusion: the Regulation is non-aligned with the BCBS Guidelines on the role of collateralization for NPLs.
  - Collateral influences asset classification and LLP purposes for legal entities.
  - High-quality collateral can place debt into the lowest RG and collateral generally is used to distribute debts between RGs according to LTVs.
  - Given these shortcomings, the Regulation is non-aligned regarding the role of collateralization for NPLs.

### Level of application (transaction vs total exposure; groups)
- BCBS Guidelines:
  - For nonretail exposures: apply Guidelines at the total exposures level — if one or more material exposures to a nonretail counterparty is an NPL, all exposures to that counterparty must be considered NPLs.
  - For retail exposures: NPL status should be considered at the transaction level, though status of other exposures should be considered as well.
    - Rationale: a retail customer may repay some transaction types (e.g., residential mortgages) but not others (e.g., credit cards).
- Regulation:
  - Article 11: criteria for RG classification should be applied at the total exposure level when the time past due criterion is applied.
    - “If a debtor to the bank has several assets exposed to the credit risk and overdue indebtedness arose for one of these assets resulting in its classification into the group with the higher risk level, then the debtor’s all assets must be assigned to the same risk group.”
  - No explicit differentiation between retail and nonretail exposures; total exposure approach applies broadly.
- Economic groups:
  - BCBS: Guidelines should be applied at the individual level, while considering other group members’ status and contagion risk in UFR assessment.
  - Regulation: silent on economic groups; only related-party considerations appear in the NI context.
    - By analogy, article 19(c) could imply group members’ debt being dragged to the highest RG in which one member’s debt has been classified.

*Source: Excerpt from the provided IMF content unit.*

### 70.      Considering all the comments made above, the conclusion is that the Regulation is

### 1blrea2021001 - 70.      Considering all the comments made above, the conclusion is that the Regulation is

### Level of application (NPLs)
- Conclusion: The Regulation is non-aligned with the BCBS Guidelines on the level of application for NPLs.
- Key findings:
  - The Regulation should be applied at the transaction level for retail exposures.
  - A specific consideration should be made of economic groups: clarify that the Regulation should be applied at the individual level but consider the situation of the other members of the group.
- Evaluation: Given the importance of these shortcomings, the Regulation is considered non-aligned with the level of application for NPLs.

### Upgrading to Performing (reclassification of NPLs)
- BCBS Guidelines: Four conditions, all of which must be met, to allow NPLs reclassification to normal status:
  - The counterparty cannot have any material exposure more than 90 DPD.
  - Repayments must have been made when due over a continuous repayment period as specified by the supervisor of at least three months (probation period), although a longer repayment period can be required for nonperforming forborne exposures.
  - The counterparty’s situation has improved so that the full repayment of the exposure is likely, according to the original, or, when applicable, modified conditions (no UFR in summary).
  - The exposure is not “defaulted” according to the Basel II standard or “impaired” according to the applicable accounting framework.
- BCBS Guidelines: Three situations that do not lead to reclassification on their own:
  - Partial write-off of an existing NPL.
  - Repossession of collateral on an NPL until the collateral is actually disposed of and the bank realizes the proceeds (exposure kept on the balance sheet remains an NPL).
  - Extension or granting of forbearance measures to an exposure already identified as an NPL subject to the relevant exit criteria for NPLs.
- Reclassification level: Reclassification should be made at the same level (counterparty or transaction) as when the exposure was originally classified as an NPL.
- Regulation: no provisions related to NPLs reclassification
  - Implied automatic reclassification; classification and LLP processes appear to reclassify assets and CL ex novo based only on the current situation.
  - Automatic reclassification implies at least one and probably two BCBS conditions are not considered:
    - The probation period (continuous repayments over at least three months) is not checked.
    - The exposure not being defaulted or impaired condition is probably not checked.
  - However, automatic reclassification would be by definition at the same level as the previous classification, so level-of-application requirement would be met implicitly.
- Conclusion: The Regulation is non-aligned with the BCBS Guidelines on upgrading NPLs to performing because automatic reclassification implies omission of at least the probation-period condition and probably the non-default/non-impairment condition.

### Interaction with Forbearance (NPLs)
- BCBS principle: Banks should not use forbearance practices to avoid classifying loans as NPLs.
- Regulation:
  - Not explicit that forbearance cannot be used to avoid NPL classification, but includes specific backstops.
  - Backstops: prohibit in principle classifying forbearance exposures in RGs with a lower risk; exclude forbearance exposures being reclassified into RG-I under any circumstance.
- Conclusion: The Regulation is aligned with the BCBS Guidelines on interaction with forbearance because the message is implicit and specific backstops are included.

### Materiality (NPLs)
- BCBS Guidelines: Materiality is considered in a generic way; no specific criteria or thresholds are provided.
- Regulation: does not consider materiality and makes no exceptions; all provisions apply to all cases without exception related to size or relative importance.
  - Implication: Regulation is more stringent than BCBS Guidelines (which are minimum standards); thus cannot be said to be non-aligned on the basis of being more stringent.
- Recommendations regarding materiality:
  - Define assets and CL types more in terms of their importance (representativeness) rather than casuistic specific characteristics.
  - Introduce materiality in cases such as:
    - (1) When part of a total exposure should be reclassified according to time past due, determine when the full loan should be reclassified (e.g., some installments of a residential mortgage loan).
    - (2) Determine when a reclassified exposure of a customer should force reclassification of his/her other exposures.
    - (3) Determine when a bad classification of exposures of a member of an economic group should force reclassification of exposures of other members of the group (including financial situation and contagion risk considerations).
- Conclusion: Materiality is not considered in the Regulation; this makes the Regulation more stringent than the BCBS Guidelines.

### Evaluation summary for NPLs (overall)
- Aggregate result: The summary evaluation regarding alignment of NPLs to the BCBS Guidelines is materially non-aligned.
- Detail from Table 6 (as summarized):
  - Scope: LA (largely aligned) — Some exclusions (notably related to high-credit quality securities).
  - Harmonized recognition criteria: MNA (materially non-aligned) — Uses time past due and UFR but definition of NPLs is based on RGs and seems too restrictive; RGs subject to high provisions are not considered NPLs (RG-III and RG-IV at least, though restructured debt of RG-IV is considered NPL).
  - Role of collateralization: NA (non-aligned) — Collateral is unduly taken into consideration for legal entities; high-quality collateral improperly used to classify debt into the lowest RG.
  - Level of application: NA (non-aligned) — Should be applied at transaction level for retail exposures; economic-group considerations needed.
  - Upgrading to performing: MNA (materially non-aligned) — No reclassification provisions; automatic reclassification omits at least the probation period and probably the non-default/non-impairment condition.
  - Interaction with forbearance: A (aligned) — No shortcomings; implicit message plus specific backstops.
- Overall summary rating: MNA (materially non-aligned).

### Forbearance — harmonization criteria (overview beginning)
- The report uses seven main harmonization criteria for forbearance (aligned with BCBS): (1) scope; (2) level of application; (3) concept of forbearance; (4) examples of financial difficulty and concessions; (5) classification of forbearance exposures; (6) discontinuation of the forbearance classification; and (7) interaction of forbearance with NPLs.
- Terminology: The Regulation uses “debt restructuring” or “restructured indebtedness” instead of “forbearance”; for comparison the report uses the term “forbearance.”
- Scope (forbearance):
  - BCBS: same scope as NPLs — includes all credit risk-related exposures except trading book.
  - Regulation: same scope as NPLs — includes loans, securities, and CL; some exclusions based on high-credit quality; no mention of trading book.
  - Conclusion: Regulation is largely aligned with BCBS on scope for forbearance.
- Level of application (forbearance):
  - BCBS: Forbearance should be applied on a transaction basis.
  - Regulation: implicitly states forbearance should be applied on a transaction basis (not explicit but wording, especially article 5.6, implies transaction-level application).
  - Conclusion: Regulation is aligned with BCBS on level of application for forbearance.
- Concept of forbearance (BCBS vs Regulation):
  - BCBS definition: concession granted to a counterparty for reasons of financial difficulty; requires both concessions (CS) and financial difficulty (FD).
  - Regulation (article 5.6): defines forbearance as modification of terms and conditions of a contract to facilitate full and due repayment of the debt that would not be possible otherwise; definition is based on modification of terms and conditions (examples provided).
  - Assessment: Regulation contains both CS and FD implicitly — CS not mentioned explicitly but implied by modification of terms; FD implicitly present via debtor’s inability to fulfill credit obligations.
- Concessions (CS):
  - BCBS: CS are special contractual terms not granted under normal market conditions; supervisors may set materiality thresholds; three ways CS can be granted: changes in existing contract conditions, supplementary agreement/new contract to refinance, exercise of embedded clauses.
  - Regulation (article 5.6): provides four ways CS can be implemented, but only covers dates and maturities:
    - (1) modification of the time of repayment of the principal debt;
    - (2) modification of the time of payment of interests;
    - (3) modification of the schedule of repayment of the principal debt (periods and amounts);
    - (4) modification of the schedule of repayment of interests (periods).
  - Shortcoming: No references to other relevant terms and conditions such as interest rates or collateral; other possibilities (partial condoning, converting debt into equity) not considered.

*Source: 1blrea2021001 - 70.      Considering all the comments made above, the conclusion is that the Regulation is*

### 17.      The BCBS Guidelines do not define the concept of FD, although they provide

### 1blrea2021001 - 17.      The BCBS Guidelines do not define the concept of FD, although they provide

### Forbearance concept and alignment with BCBS Guidelines
- The BCBS Guidelines do not define the concept of FD, but provide several illustrative examples related to the main recognition criteria for NPLs determination: time past due and UFR.
- The Regulation does not formally define FD; it only mentions the “debtor’s inability to fulfill its obligations to the Bank,” which from context is reflected in time past due (DPD) and/or a weak financial situation evaluated in terms of FI.
- Conclusion: The Regulation is materially non-aligned (MNA) with the BCBS Guidelines on the forbearance concept because:
  - The Regulation should include changes to terms and conditions other than dates and maturities, especially regarding interest rates and collateral.
  - Partial condoning of the debt and conversion of debt into equity are not considered.
  - These are significant limitations to the CS concept.

### Examples of Concessions (CS) and Financial Difficulty (FD)
- BCBS examples of CS (full list of eleven):
  1. extending the loan term;
  2. rescheduling the dates of principal or interest payments;
  3. granting new or additional periods of nonpayment (grace period);
  4. reducing the interest rate, resulting in an effective interest rate below the current interest rate that counterparties with similar risk characteristics could obtain from the same or other institutions in the market;
  5. capitalizing arrears;
  6. forgiving, deferring, or postponing principal, interest, or relevant fees;
  7. changing an amortizing loan to an interest payment only;
  8. releasing collateral or accepting lower levels of collateralization;
  9. allowing the conversion of debt to equity of the counterparty;
  10. deferring recovery/collection actions for extended periods of time; and
  11. easing of covenants.
- Regulation: contains four examples of CS, all focused on dates and maturities.
  - Recommendation: Regulation should adopt a broader concept for CS and provide examples related to changes in interest rates, collateral, partial condoning, conversion to equity, and other options.
- BCBS examples of FD (full list of seven):
  1. a counterparty is currently past due on any of its material exposures;
  2. a counterparty is not currently past due, but it is probable that the counterparty will be past due on any of its material exposures in the foreseeable future without the concession, for instance, when there has been a pattern of delinquency in payments on its material exposures;
  3. a counterparty’s outstanding securities have been delisted, are in the process of being delisted, or are under threat of being delisted from an exchange due to noncompliance with the listing requirements or for financial reasons;
  4. on the basis of actual performance, estimates, and projections that encompass the counterparty’s current capabilities, the bank forecasts that all the counterparty’s committed/available cash flows will be insufficient to service all of its loans or debt securities (both interest and principal) in accordance with the contractual terms of the existing agreement for the foreseeable future;
  5. a counterparty’s existing exposures are categorized as exposures that have already evidenced difficulty in the counterparty’s ability to repay in accordance with the supervisory categorization scheme in force or the credit categorization scheme in a bank’s internal credit rating system;
  6. a counterparty is of nonperforming status or would be categorized as nonperforming without CS; and
  7. the counterparty cannot obtain funds from sources other than the existing banks at an effective interest rate equal to the current market interest rate for similar loans or debt securities for a non-troubled counterparty.
- Regulation: does not contain any FD examples; FI examples are too limited to serve as a reference.
- Conclusion: Regulation is materially non-aligned (MNA) with BCBS Guidelines regarding forbearance examples (CS examples limited to dates/maturities; no direct FD examples).

### Classification of forborne exposures
- BCBS Guidelines:
  - Forbearance exposures can be included in performing or NPLs.
  - When forbearance is applied to an NPL, the exposure should remain an NPL.
  - When forbearance is applied to a performing exposure, the bank must assess whether the exposure meets the NPL criteria.
  - Appropriate classification depends on: (1) status of the exposure when forbearance granted; and (2) counterparty’s payment history or creditworthiness after forbearance.
- Regulation:
  - Article 39: restructured indebtedness (forbearance exposures) cannot be assigned to an RG with a lower risk level than the RG before restructuring.
  - Indebtedness assigned to RG-I to RG-III shall be assigned to RG-IV after restructuring; indebtedness assigned to RG-IV to RG-VI are considered NPLs (article 31).
  - Therefore, all forbearance exposures will be initially considered NPLs (initial classification into RG-IV to RG-VI).
  - Article 39 allows reclassification by the bank of forbearance exposures into any RG but RG-I (subject to requirements in articles 39 and 40), allowing reclassification into RG-II or RG-III (not considered NPLs).
- Conclusion: Regulation is aligned (A) with BCBS Guidelines on categorization of forbearance exposures.

### Discontinuation of the forbearance classification
- BCBS requires two criteria to cease being considered forbearance:
  1. probation period: payments made in a timely manner over a continuous repayment period of not less than one year; starting date is the scheduled start of payments under revised terms;
  2. solvency test: counterparty has resolved its FD.
- Regulation:
  - Article 39 third part: banks may reclassify forbearance exposures if payments were made in due time and fully during a continuous period of at least 12 months from initial classification (probation period) and no signs of NI or FI.
- Conclusion: Regulation is aligned (A) with BCBS Guidelines on discontinuation of the forbearance categorization.

### Interaction of forbearance with NPLs
- BCBS:
  - Banks should not use forbearance to avoid classifying loans as NPLs.
  - Definition prohibits upgrading an NPL by granting forbearance and requires separate categorization for forborne exposures.
  - Forbearance may be granted on performing exposures or NPLs; outcomes depend on circumstances. If the original exposure would have been categorized as an NPL at the time of granting forbearance had it not been granted, the new exposure should be categorized as an NPL.
  - Forborne exposures granted new forbearance during the probation period should trigger a restart of the probation period; banks should consider whether the exposure should be categorized as NPL.
- Regulation:
  - Not explicit that banks should not use forbearance to avoid NPL classification, but includes backstops: prohibits in principle classifying forbearance exposures into RGs with a lower risk and excludes reclassification into RG-I under any circumstance.
  - Forbearance may be granted on performing exposures or NPL, but must be classified as an NPL in any case:
    - Forbearance applied to RG-V and RG-VI exposures cannot be classified into a lower RG (article 39).
    - Forbearance applied to RG-I to RG-IV exposures must be classified at least into RG-IV, and forbearance exposures of RG-IV are considered NPLs (article 31).
  - Article 40: prohibits reclassification of forbearance exposures when forbearance has been granted more than twice, except for natural persons and microloans; this goes further than BCBS (which highlights restart of probation upon subsequent forbearance) by applying a stricter rule only after two grants and exempting natural persons and microloans.
  - Regulation does not have a probation period for NPLs; probation exists only for forbearance exposures. NPL reclassification is automatic per recognition criteria.
- Conclusion: Regulation is largely aligned (LA) with BCBS Guidelines on interaction of forbearance with NPLs; some differences exist but are not significant and Regulation is sometimes stricter (e.g., forbearance exposures always classified as NPLs).

### Evaluation summary for forbearance (as presented)
- Scope: LA
  - As in the case of NPLs, some exclusions are made, the most relevant being those related to high-credit quality securities.
- Level of application: A
  - No shortcomings.
- Concept of forbearance: MNA
  - The main elements of the concept of forbearance are not formally present and only dates and maturities changes are considered for CS purposes.
- Examples of FD and CS: MNA
  - CS examples limited to dates and maturities; FD has no direct examples and indirect FI examples cannot serve the purpose.
- Categorization of forbearance exposures: A
  - No shortcomings.
- Discontinuation of the forbearance categorization: A
  - No shortcomings.
- Interaction of forbearance with NPLs: LA
  - Some differences with BCBS approach but not significant.
- Summary evaluation: LA
  - Three criteria evaluated as A, two as LA, and two as MNA. The simple average is LA; taking into account relative importance (classification and discontinuation rated A; concept rated MNA) confirms largely aligned.

_Italic line: Source: Content unit 1blrea2021001 (provided content)_.

### 3.      Even though neither NPLs nor forbearance existed as such before, changes can

### 3.      Even though neither NPLs nor forbearance existed as such before, changes can

### Overview
- The current Regulation introduces the main concepts of NPLs and forbearance; other changes are organized using harmonization criteria.
- The current Regulation has made significant progress regarding alignment with the BCBS Guidelines, though substantial room for further alignment remains.
- Advances in asset classification and LLP should be further structured and integrated with the NPLs concept into a robust related framework.
- Twenty-three criteria are referenced. The Regulation was changed twice in the meantime, noted as minor changes.

### Main changes in the current Regulation regarding NPLs (summary of Table 1)
- Scope
  - Debt incurred by the bank due to the purchasing of property for its activities, the accounts receivable related to economic activities, the accrued incomes, and other assets are no longer excluded from the scope.
  - All shares are excluded now; previously only those shares included in the trading book were.
- Harmonized recognition criteria
  - A definition of NPLs has been included in the new Regulation even though NPLs are not mentioned elsewhere; no mention of NPLs was made before.
  - The description of and guidance for the bank’s internal procedures for asset classification and LLP have been drastically shortened and summarized; now, no reference to external factors is made.
  - The provisions for NI and FI have been summarized and clarified; NI is now clearly differentiated from FI.
  - NI and FI concepts and minimum requirements have been streamlined, but are substantially the same; however, references to debtors’ credit performance with other parties, including related courts proceedings, have been eliminated.
  - There are six RGs now instead of five; the former RG-II with related provisions of 5% to 30% has been subdivided between the new RG-II (5% to 20%) and the new RG-III (20% to 30%). Former RG-IV and -V are now RG-V and –VI, respectively, and specific names have been established for each of the RGs.
  - The types of assets and CL to be considered for RGs classification purposes have been changed in the new Regulation.
  - The term “prolonged debt” is not used anymore for asset classification purposes; “restructured indebtedness” is used instead, even if in a summarized way (to define NPLs and to determine in a general way how restructured debt should be classified into RGs).
- Role of collateralization
  - A new chapter is devoted to the role of collateralization, but the contents are basically the same in substance as before in the chapter devoted to RGs; the only, and important, exception is the introduction of a special type of collateral, the high-quality collateral.
  - High-quality collateral is now used to classify all covered debt and CL into RG-I.
- Interaction with forbearance
  - The specific backstops to prevent banks using forbearance to avoid classifying exposures have been changed.
  - The current Regulation incorporates specific backstops; the previous Regulation had some backstops preventing reclassification into RGs with lower risks.

### Main changes in the current Regulation regarding forbearance (summary of Table 2)
- Scope
  - Same changes as for the NPL scope.
- Concept of forbearance
  - The concept of forbearance is introduced in the Regulation through the terms “debt restructuring” and “restructured debt.”
  - CS and FD are introduced in the new Regulation, although implicitly; the previous version just used the term “prolonged debt” and the number of prolongations without defining the term. This means that even when some provisions of the previous version can be relatively interpreted in a forbearance context, the main elements, CS and FD would be missing and no differentiation could be made between forbearance and transactions being renewed just on business and commercial grounds (for example, working capital financing).
- Examples and discontinuation
  - Some examples related to CS have been incorporated into the new Regulation.
  - Even though forbearance was not part of the previous Regulation, the conditions for the discontinuation of forbearance classification were there in some way, as the probation period and the solvency test were required to write off exposures. This was necessary to reclassify them as on-balance sheet items under RG-II.

### Analysis of the changes considering the detailed RGs definitions (points 5–12)
- A deeper analysis compares detailed RG definitions for assets between the previous Regulation (five RGs) and the current Regulation (six RGs).
- Elements introducing heterogeneity between versions:
  - Number of RGs (previous: five; current: six).
  - Term change: “prolonged debt” (previous) replaced by “debt restructuring” and the forbearance concept (current).
  - Substantial differences in the types of assets used.
- Mapping of RGs
  - Current RG-II and RG-III together correspond generally to the former RG-II (former RG-II: 5–30 percent; new RG-II: 5–20 percent; new RG-III: 20–30 percent).
  - Current RG-IV to RG-VI correspond respectively to the previous RG-III to RG-V.
- Interpretation of “prolonged debt” vs forbearance
  - “Prolonged debt” is undefined in the previous Regulation and must be interpreted; it appears to correspond mostly to forbearance, especially where the criterion is “prolonged more than once.”
  - Under the current forbearance framework, prolonged debt would be equivalent to NPLs—unless reclassified after a probation period and a solvency test.
  - There is insufficient information to evaluate these cases in detail; such cases are likely relatively few.
- NPLs and “problem assets”
  - NPLs, according to international benchmarks, would be represented in the previous Regulation mostly by RG-III to RG-V.
  - Most contents of RG-III to RG-V represent situations that would be qualified as NPLs according to international benchmarks:
    - RG-IV and RG-V: main criterion is time past due.
    - RG-III: main criterion is prolonged debt.
  - “Problem assets” was not defined in the previous Regulation; another regulation defined it as the aggregate of RG-III to RG-V. Those RGs include cases with provisions of 30–100 percent.
  - Although RG-II has a provision range of 5–30 percent, banks used just the lower figure (5 percent) for LLP purposes, implying RG-II was less representative of problem assets.
  - Problem assets in the previous Regulation were more representative of NPLs in international terms than the NPLs definition used in the current Regulation. The basic difference is related to the consideration of the previous RG-III/current RG-IV: problem assets included all of it, while current NPLs only consider the restructured or forbearance exposures part of it.

### Comparison of types of assets (points 13–16; summary of Table 4)
- Only four direct correspondences between current and previous asset typologies:
  - Microloans (current) — Micro credits (previous).
  - Banks — Banks.
  - Other active transactions — Performed obligations for third parties (residual categories).
  - Other circumstances — Other circumstances (residual categories).
- Four cases requiring aggregation/disaggregation for comparison:
  - Current “Legal persons (including individual entrepreneurs): loans except microloans, assignment of the right of a monetary claim or alienation of assets and factoring” corresponds to previous “Debt under credit (except credits of natural persons and microcredits)” and “Factoring (except natural persons)”.
  - Current “Natural persons—loans, financial leasing, and factoring” corresponds to previous “Natural person credits” and “Factoring (natural persons)”.
  - Current “Securities” corresponds to previous “Securities (according to Chapter 4)” and “Securities (according to Chapter 3)”.
  - Current “Legal persons—financial leasing” corresponds to previous “Leasing” (which included natural persons).
- Five cases with no correspondence (cannot be compared):
  - Assets with high-quality collateral (term introduced in the current Regulation).
  - Provision for an advance in payment for goods, works, and services (commercial loans) (current only).
  - Promissory notes and certificates of deposit (current only).
  - Debt related to RG-IV classified by the bank according to additional criteria (current only).
  - Debt with incomplete or no information on the debtors (except GA) (current only).
- Comparative scheme used in subsequent tables (description of color-coding approach in source):
  - Blue: current Regulation is stricter.
  - Red: current Regulation is more benevolent.
  - Gray: no changes.
  - Evaluation of prolonged debt is limited in scope in most comparative cases.

*Source: Author’s elaboration based on the contents of articles 27–31 and 42.1–42.4 (content unit: 1blrea2021001).*

### 18.      Legal persons are now treated more benevolently in general terms, as

### 1blrea2021001 - 18.      Legal persons are now treated more benevolently in general terms, as

### Treatment of legal persons (qualitative comparison)
- Legal persons are now treated more benevolently in general terms, as requirements have been lowered practically one grade for current RG-III to RG-VI.
- Evaluation difficulty reasons:
  - Factoring was evaluated separately in the previous Regulation.
  - Casuistic treatment based on existing collateral in the previous Regulation.
  - Intensive use of the prolonged debt criterion in the previous Regulation but not in the current one.
- Net conclusion from careful consideration of involved factors and criteria: legal persons treated more benevolently (requirements lowered one grade for current RG-III to RG-VI).

### Legal persons — financial leasing
- Legal persons-financial leasing is treated now in a slightly more benevolent way.
- Time past due (DPD) criterion relaxed: situations with fewer than 30 DPD are integrated into RG-III and subject to lower provisions (20 percent instead of 30 percent).
- Note: Previous Regulation did not differentiate leasing to legal persons from leasing to natural persons; criteria were the same.

### Natural persons
- Natural persons are now treated slightly more benevolently.
- Situations with fewer than 60 DPD are integrated into RG-III and therefore subject to lower provisions (20 percent instead of 30 percent).
- Same evaluation difficulties noted as for legal persons (factoring, collateral casuistry, prolonged debt criterion).

### Microloans
- Microloans are now treated in a slightly more benevolent way.
- Application of the time past due criterion relaxed: situations with fewer than 30 DPD are now integrated into RG-III and subject to lower provisions (20 percent instead of 30 percent).

### Banks
- Banks are now treated in a slightly more benevolent way.
- Banks’ FI is now integrated into RG-III and therefore subject to lower provisions (20 percent instead of 30 percent).

### Securities
- Securities are now treated slightly more benevolently.
- Situations with fewer than 30 DPD and/or FI are now integrated into RG-III and therefore subject to lower provisions (20 percent instead of 30 percent).
- Evaluation complexity: securities were evaluated in two different ways in the previous Regulation.

### Other active transactions and other circumstances
- Other active transactions: application of the time past due criterion has been relaxed, increasing the minimum required DPD for current RG-III to -VI (former RG-II to -V).
- Other circumstances: number of cases to be included in the worst RG substantially reduced, from eight to two; treated more benevolently.

### Forbearance and debt-restructuring framework
- The change has resulted in practice in moving forbearance exposures to RGs with higher risk and related provision levels.
- Replacing the extensive use of the prolonged debt criterion with a more structured approach based on forbearance considerations has made the contents of the different RGs more necessary in practice.
- Replacement of the “prolonged debt” scheme with the “debt restructuring” framework is more aligned with BCBS Guidelines on forbearance.
- Compared to the previous scheme based on “prolonged debt”, the adoption of the current Regulation represents significant progress.

### Collateralized loans (CL)
- Direct comparison for CL is not possible: previous Regulation classified CL by kind of CL (financing obligations, guarantees, etc.), current Regulation classifies CL by counterparties (banks, natural persons, etc.).
- Relative importance of CL in asset classification and LLP context is relatively low; inability to compare CL is not a significant limitation.

### Quantitative comparison — scope and total assets
- Objective: identify significant quantitative changes focused on asset classification and LLP, particularly NPLs.
- Data limitations: provided data set is limited; no detailed information about types of assets and CL and their treatment; quantitative analysis complements qualitative assessment.
- Key observed change: total assets increased significantly (12.8 percent) once the regulatory change entered into force even though no major scope changes were made.
  - Current Regulation entered into force in April 2018; first reported figures according to the current Regulation correspond to May 2018.
  - The increase of 12.8 percent in May 2018 should be investigated further (introduction of broader scope suggested but not supported by texts of the two versions).
- Another observed difference: relevant amount of assets not classified into any RG (other assets).
  - These other assets represent on average about 2 percent of the total assets.

### Key statistics (Total Assets and RG amounts, BYN Million)
- Total Assets by month:
  - 01/2018: 43.177
  - 02/2018: 42.850
  - 03/2018: 43.232
  - 04/2018: 43.800
  - 05/2018: 49.402
  - 06/2018: 49.581
  - 07/2018: 49.526
  - 08/2018: 49.692
  - 09/2018: 50.827
  - 10/2018: 52.788
- Month-over-month Increase (%) (where given):
  - -0.8%, 0.9%, 1.3%, 12.8%, 0.4%, -0.1%, 0.3%, 2.3%, 3.9%
- RG amounts (BYN Million) by month (RG-I through RG-VI, Subtotal, Other assets, Total Assets):
  - RG-I: 24.521, 23.916, 24.699, 24.526, 28.393, 28.488, 28.252, 28.472, 28.601, 30.363
  - RG-II: 12.461, 12.601, 12.234, 12.741, 12.919, 12.671, 12.843, 12.674, 13.554, 13.049
  - RG-III: 4.692, 4.773, 4.639, 4.680, 3.117, 3.290, 3.106, 3.070, 3.221, 3.837
  - RG-IV: 770, 778, 835, 945, 3.020, 2.979, 3.261, 3.362, 3.365, 3.352
  - RG-V: 87, 80, 77, 104, 671, 833, 806, 791, 735, 782
  - RG-VI: -, -, -, -, 368, 398, 219, 148, 156, 129
  - SUBTOTAL: 42.531, 42.148, 42.484, 42.996, 48.488, 48.659, 48.488, 48.517, 49.630, 51.512
  - Other assets: 646, 703, 749, 804, 913, 922, 1.038, 1.175, 1.196, 1.275
  - Total Assets: 43.177, 42.850, 43.232, 43.800, 49.402, 49.581, 49.526, 49.692, 50.827, 52.788

### RG composition (percent of total assets by month)
- RG-I: 56.8%, 55.8%, 57.1%, 56.0%, 57.5%, 57.5%, 57.0%, 57.3%, 56.3%, 57.5%
- RG-II: 28.9%, 29.4%, 28.3%, 29.1%, 26.2%, 25.6%, 25.9%, 25.5%, 26.7%, 24.7%
- RG-III: 10.9%, 11.1%, 10.7%, 10.7%, 6.3%, 6.6%, 6.3%, 6.2%, 6.3%, 7.3%
- RG-IV: 1.8%, 1.8%, 1.9%, 2.2%, 6.1%, 6.0%, 6.6%, 6.8%, 6.6%, 6.3%
- RG-V: 0.2%, 0.2%, 0.2%, 0.2%, 1.4%, 1.7%, 1.6%, 1.6%, 1.4%, 1.5%
- RG-VI: 0.0%, 0.0%, 0.0%, 0.0%, 0.7%, 0.8%, 0.4%, 0.3%, 0.3%, 0.2%
- SUBTOTAL: 98.5%, 98.4%, 98.3%, 98.2%, 98.2%, 98.1%, 97.9%, 97.6%, 97.6%, 97.6%
- Other assets: 1.5%, 1.6%, 1.7%, 1.8%, 1.8%, 1.9%, 2.1%, 2.4%, 2.4%, 2.4%
- Total Assets: 100.0% (each month)

### Realignment guidance for comparisons
- To compare previous and current RGs, realign:
  - Previous RG-II -> current RG-II + RG-III (aggregate)
  - Previous RG-III, -IV, -V -> current RG-IV, -V, -VI respectively
  - Previous RG-I <-> current RG-I

*Source: 1blrea2021001 - 18.      Legal persons are now treated more benevolently in general terms, as (PDF).*

### 10.      The importance of the two RGs with the higher risk levels is relatively low:

### 10.      The importance of the two RGs with the higher risk levels is relatively low:

### RG distribution and effects of the regulatory change
- RG-IV and RG-V, according to the previous regulation, represent only 2.4 percent of the total assets.
- The equivalent RGs after the regulatory change, RG-V and -VI, represent 2.1 percent.
- The current RG-II and -III aggregate amount represents significantly more than the amount of the previous RG-II:
  - Previous RG-II represented 29.1 percent before the regulatory change.
  - Aggregate of RG-II and -III after the regulatory change represented 32.5 percent.
- The difference (29.1 percent vs 32.5 percent) most probably results from the landslide observed in the qualitative section, especially regarding displacements from current RG-IV to III.
- Importance shifts:
  - RG-I increases, compensated by the decrease of the previous RG-III (now current RG-IV).
  - Significant decrease of the previous RG-III (now current RG-IV).
- Comparative table figures (PREVIOUS RG 04/2018 → CURRENT RG 05/2018; DIFFERENCE):
  - RG-I 56.0% → RG-I 57.5%; 1.5%
  - RG-II 29.1% → RG-II 26.2%; -3.4%
  - RG-III 6.3% → RG-III 10.7% / RG-IV 6.1%; -4.6%
  - RG-IV 2.2% → RG-V 1.4%; -0.8%
  - RG-V 0.2% → RG-VI 0.7%; 0.5%
  - SUBTOTAL 98.2% → SUBTOTAL 98.2%; 0.0%
  - Other assets 1.8% → Other assets 1.8%; 0.0%
  - Total Assets 100.0% → Total Assets 100.0%; 0.0%
- Interpretation:
  - The new Regulation is softer than the previous one.
  - The prolonged debt approach appears to have been applied quite limited in practice.

### Problem Assets and NPLs
- Definitions and aggregate measures:
  - Previous Regulation: "problem assets" = aggregate of RG-III to -V.
  - Problem assets just before the regulatory change: 13.1 percent.
  - Current Regulation: NPLs = RG-V to -VI plus the part of RG-IV corresponding to restructured debt.
  - NPLs just after the regulatory change: 3.6 percent.
- Time series (Table 6 excerpt: Problem assets or NPLs / Total Assets / %):
  - PERIOD 01/2018 → Problem assets or NPLs 5.549; Total Assets 43.177; % 13.0%
  - 02/2018 → 5.631; 42.850; 13.4%
  - 03/2018 → 5.551; 43.232; 13.1%
  - 04/2018 → 5.729; 43.800; 13.3%
  - 05/2018 → 1.743; 49.402; 3.6%
  - 06/2018 → 1.989; 49.581; 4.1%
  - 07/2018 → 1.849; 49.526; 3.8%
  - 08/2018 → 1.922; 49.692; 4.0%
  - 09/2018 → 2.118; 50.827; 4.3%
  - 10/2018 → 2.178; 52.788; 4.2%
- Composition of NPLs (PERIOD / RG 05/2018–10/2018):
  - Restructured debt in RG-IV: 05/2018 704; 06/2018 757; 07/2018 823; 08/2018 983; 09/2018 1.228; 10/2018 1.267
  - RG-V: 05/2018 671; 06/2018 833; 07/2018 806; 08/2018 791; 09/2018 735; 10/2018 782
  - RG-VI: 05/2018 368; 06/2018 398; 07/2018 219; 08/2018 148; 09/2018 156; 10/2018 129
- Observations:
  - NPLs aligned with international benchmarks likely lie between measures of problem assets and the official NPLs.
  - Problem assets may be conservative; current Regulation NPLs may fall short of international NPL definitions.
  - A significant part of NPLs come from restructured debt classified into RG-IV; restructured debt is a significant and increasing part of RG-IV.

### Provisions: totals and stability
- Global provisioning levels (PERIOD 01/2018–10/2018; Provisions / Total Assets / %):
  - 01/2018 → Provisions 2.688; Total Assets 43.177; % 6.2%
  - 02/2018 → 2.743; 42.850; 6.4%
  - 03/2018 → 2.735; 43.232; 6.3%
  - 04/2018 → 2.868; 43.800; 6.5%
  - 05/2018 → 3.162; 49.402; 6.4%
  - 06/2018 → 3.285; 49.581; 6.6%
  - 07/2018 → 3.168; 49.526; 6.4%
  - 08/2018 → 3.139; 49.692; 6.3%
  - 09/2018 → 3.189; 50.827; 6.3%
  - 10/2018 → 3.310; 52.788; 6.3%
- Conclusion:
  - Provisioning percentages are stable and have not been affected by the regulatory changes, representing an average 6.4 percent of the total assets.
- Provisions not classified into any RG:
  - Other provisions represent an average of about 6.7 percent of the total provisions.
  - These other provisions may correspond to provisions for CL, but should be distributed into the different RGs if so.

### Provisioning distribution by RG and regulatory minima
- Provisions by RG (PERIOD 01/2018–10/2018; BYN Million):
  - RG-I: 120, 121, 124, 123, 137, 138, 137, 138, 139, 144
  - RG-II: 501, 524, 513, 537, 594, 593, 598, 599, 633, 611
  - RG-III: 1.408, 1.432, 1.392, 1.405, 630, 665, 628, 621, 651, 776
  - RG-IV: 391, 390, 418, 473, 915, 902, 987, 1.017, 1.015, 1.012
  - RG-V: 87, 80, 77, 104, 346, 418, 404, 397, 371, 398
  - RG-VI: -, -, -, -, 368, 398, 219, 148, 156, 129
  - SUBTOTAL: 2.508, 2.547, 2.525, 2.642, 2.990, 3.114, 2.973, 2.919, 2.965, 3.071
  - Other provisions: 181, 196, 210, 226, 172, 170, 195, 220, 224, 239
  - Total Provisions: 2.688, 2.743, 2.735, 2.868, 3.162, 3.285, 3.168, 3.139, 3.189, 3.310
- Provisioning levels by RG (PERIOD 01/2018–10/2018; percentages):
  - RG-I: 0.5% (consistent across period)
  - RG-II: 4.0%, 4.2%, 4.2%, 4.2%, 4.6%, 4.7%, 4.7%, 4.7%, 4.7%, 4.7%
  - RG-III: 30.0%, 30.0%, 30.0%, 30.0%, 20.2%, 20.2%, 20.2%, 20.2%, 20.2%, 20.2%
  - RG-IV: 50.8%, 50.1%, 50.1%, 50.1%, 30.3%, 30.3%, 30.3%, 30.3%, 30.2%, 30.2%
  - RG-V: 100.0%, 100.0%, 100.0%, 100.0%, 51.6%, 50.2%, 50.1%, 50.2%, 50.5%, 50.9%
  - RG-VI: N.A., N.A., N.A., N.A., 100.0%, 100.0%, 100.0%, 100.0%, 100.0%, 100.0%
  - SUBTOTAL: 5.9%, 6.0%, 5.9%, 6.1%, 6.2%, 6.4%, 6.1%, 6.0%, 6.0%, 6.0%
  - Other provisions: 28.0%, 28.0%, 28.1%, 28.1%, 18.8%, 18.5%, 18.7%, 18.7%, 18.7%, 18.8%
  - Total Provisions: 6.2%, 6.4%, 6.3%, 6.5%, 6.4%, 6.6%, 6.4%, 6.3%, 6.3%, 6.3%
- Regulatory minimum provisioning values:
  - Previous RG minima: 0.5, 5, 30, 50, and 100 percent.
  - Current RG minima: 0.5, 5, 20, 30, 50, and 100 percent.
- Observations:
  - Provisioning levels per RG have been stable and close to the minimum regulatory values both before and after the regulatory change.
  - Banks do not build provisions substantially over the minimum regulatory values despite regulatory incentives and legal provisions related to internal regulatory acts.

### Aggregate provisioning for problem assets and NPLs
- Provisioning amounts and ratios (Table 10 excerpt: Problem assets and NPLs; PERIOD 01/2018–10/2018):
  - Provisions (for problem assets/NPLs): 01/2018 1.887; 02/2018 1.902; 03/2018 1.887; 04/2018 1.982; 05/2018 1.743; 06/2018 1.989; 07/2018 1.849; 08/2018 1.922; 09/2018 2.118; 10/2018 2.178
  - Problem assets (amounts): 01/2018 5.549; 02/2018 5.631; 03/2018 5.551; 04/2018 5.729; 05/2018 930; 06/2018 1.048; 07/2018 875; 08/2018 844; 09/2018 900; 10/2018 913
  - Problem asset provisioning %: 34.0%, 33.8%, 34.0%, 34.6%, 53.3%, 52.7%, 47.3%, 43.9%, 42.5%, 41.9%
- Interpretation:
  - Average provisioning for problem assets was stable at about 34 percent.
  - Average provisions for NPLs are higher but significantly decreasing, from more than 53 percent to almost 42 percent.
  - This divergence reflects different nature and composition of problem assets and NPLs; many problem assets have relatively low provisioning levels while current NPLs carry higher provisioning.

*Source: Author’s elaboration based on data provided by the NBRB.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1blrea2021001.pdf_