BANK 4.7.3 Making provisions

(1) A banking business firm must ensure that the firm maintains provisions that, taken together, are prudent, reasonable and adequate to absorb credit losses, given the facts and circumstances. The losses covered must include losses incurred, losses incurred but not yet reported, and losses estimated but not certain to arise, extending over the life of the individual credits that make up its credit portfolio.
(2) The firm must also ensure that provisions and write-offs are timely and reflect realistic repayment and recovery expectations, taking into account market and macroeconomic conditions. The firm must consider all the significant factors that affect the likelihood of collecting on the transactions that make up its credit portfolio and the estimated future credit losses on those transactions.
(3) The firm must make provisions that in total at least meet the requirements in table 4.7.3.

Table 4.7.3 Provisioning requirements

column 1 item column 2 category column 3 minimum provisioning requirement (% of the unsecured part of the credit)
1 performing 0
2 special mention 5
3 substandard 20
4 doubtful 50
5 loss 100
(4) Provisions may be general (assessed collectively against the whole of a portfolio) or specific (assessed against individual credits), or both.
(5) The firm must take into account off-balance-sheet exposures in its categorisation of credits and in provisioning.

Note There are 2 types of off-balance-sheet exposures: those that can be unilaterally cancelled by the firm and those that cannot. No provisioning is necessary for the former.
Amended by QFCRA RM/2015-3 (as from 1st January 2016).