CM-4.4 CM-4.4 Provisions against Sovereign Debt
The CBB has consistently encouraged banks to maintain adequate provisions against loans to borrowers experiencing difficulties and against loans for countries with current or potential debt servicing difficulties.Amended: January 2011
In all cases the assessment of loans - and decisions regarding adequate provisions - are assisted by the categorization of loans as defined by the CBB in Section CM-2.2. In addition, with regard to '
sovereign debt' it is particularly important that the size of the provisions made should be based on the identification and objective assessment of the nature and extent of difficulties being experienced by particular countries and reflect as near as possible deterioration in the prospects for recovering debts. With these objectives in mind, the Sovereign Debt Provisioning Matrix (see Appendix CM-1) contains a list of measurements which have been designed to help identify those borrowers and countries with payment difficulties and to decide what would constitute adequate provisions.Amended: January 2011
It is emphasized that this Section and the Sovereign Debt Provisioning Matrix (see Appendix CM-1) are merely a general framework for assessing degrees of provisions. They should not be regarded as an exhaustive or definitive framework. Nevertheless, the CBB does intend to include the results of banks' calculations in its discussions with them, and to establish that adequate provisions are being made.Amended: January 2011
Implications of International Accounting Standard (IAS) no. 39 on the Provisions Assessed through Sovereign Debt Provisioning Matrix
The banks must continue to apply the Sovereign Debt Provisioning Matrix (see Appendix CM-1) as a benchmark for estimating future recoverable cash receipts. However, if a lower provisioning amount is determined, i.e. lower than the amount identified through the matrix, and the bank intends to book the lower amount, then a meeting must be arranged with the CBB to discuss the issues before booking such provisions.Amended: July 2011
Amended: January 2011