into the following five categories (a) Normal Risk (Pass); (b) Watch (Special Mention); (c) Substandard; (d) Doubtful; and (e) Loss. (2) Non-performing credit facilities shall include Substandard, Doubtful and Loss categories and shall be classified by financial institutions according to the criteria
prescribed in these Regulations, unless prior approval of the Central Bank has been obtained under regulation 14(4). (3) A financial institution shall apply subjective or objective criteria, with the more severe method to be the norm. (4) Significant departure from the primary source of repayment, too liberal repayment terms, and modification of credit terms and conditions to cure delinquency shall warrant adverse classification even when the credit facility appears current or up-to-date. (5) Criteria for Normal Risk (Pass) classification are as follows-
(a)
subjective criteria includes all of the following-
(i)
where the financial condition of the borrower is sound;
(ii)
where there is adequate documentation to support the granting of credit, such as current financial statements, cash flows, credit checks and evaluation report on collateral held; and (iii) if the account is supported by collateral, the collateral shall be unimpaired. (b) objective criteria includes all the following- (i) a credit facility with fixed repayment which is up- to-date in payments; and (ii) an overdraft or credit facility without fixed repayment which is operating within the approved limit; with unexpired credit line; with interest charges covered by deposits; with no hardcore and showing turnovers which are equivalent to, or greater than the approved credit line plus interest charges.
(6)
Criteria for Watch ( Special Mention) classification are as follows-
(a)
subjective criteria includes any of the following- (i) a credit facility which is currently up-to-date but evidence suggests that certain factors could, in the future, affect the borrower's ability to service the account properly or impair the collateral;
(ii)
a credit facility which may deteriorate because of current market conditions affecting the sector or industry; or
(iii)
a renegotiated credit facility which is up-to- date in repayments and adequately secured for a minimum of one year after rescheduling and during which period there would have been no inherent weaknesses affecting repayment.
(b)
objective criteria includes any of the following- (i) for a credit facility with fixed repayment dates; when the principal or interest is due and unpaid for one month to less than ninety days; the interest charges for thirty days to less than ninety days have been capitalized, refinanced or rolled - over; or
(ii)
for an overdraft or credit facility without fixed repayment dates; when the approved limit has been exceeded for thirty days to less than ninety days; the credit line has expired for thirty days to less than ninety days ; the interest charge for thirty days to less than ninety days has not been covered by deposits; or the account had turnovers which did not conform to the business cycle.
(7)
Criteria for substandard classifications are as follows-
(a)
subjective criteria includes any of the following-
(i)
credit facilities display well-defined credit weaknesses that jeopardize the liquidation of the debt such as inadequate cash flow to service the debt, undercapitalized or insufficient working capital, absence of adequate financial information or security documentation and irregular payment of principal or interest; or
(ii)
credit facilities that are not protected by the current sound net worth and paying capacity of the borrower.
(b)
objective criteria includes any of the following- non-performing credit facilities meeting the criteria specified in regulation 6, on which principal or interest remain unpaid or where credit line is exceeded or expired, for ninety days to less than one hundred and eighty days. (8) Criteria for Doubtful Classifications are as follows- (a) subjective criteria includes any of the following-
(i)
where the collection of the debt in full is highly questionable or improbable; or (ii) credit facilities which, in addition to the weaknesses existing in substandard credits, have deteriorated to the extent that full repayment is unlikely or that realizable security values will be insufficient to cover the financial institution's exposure; (b) objective criteria includes non-performing credit facilities meeting the criteria specified in regulation 6 on which principal or interest remains unpaid or where credit line is exceeded or expired, for one hundred and eighty days to less than one year.
(9)
Criteria for Loss Classifications are as follows-
(a)
subjective criteria which includes any of the following-
(i)
credit facilities that are considered uncorrectable or which may have some recovery value but it is not considered practicable nor desirable to defer write- off (even though partial recovery may be effected in the future); (ii) an account classified as Doubtful with little or no improvement over the period it has been classified as such; and
(b)
objective criteria which includes non-performing credit facilities meeting the criteria specified in regulation 6, on which principal or interest remains unpaid or where credit line is exceeded or expired, for one year or more.
