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  • CM-3.4 CM-3.4 Provisions against sovereign credit

    • CM-3.4.1

      The Agency has consistently encouraged banks to maintain adequate provisions against credits to borrowers experiencing difficulties and against credits for countries with current or potential credit servicing difficulties.

    • CM-3.4.2

      In all cases the assessment of credits — and decisions regarding adequate provisions — are assisted by the categorization of credits as defined by the Agency in section CM-3.2. In addition, with regard to "sovereign credit" 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 credits. With these objectives in mind, the Sovereign Credit 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.

    • CM-3.4.3

      It is emphasized that this section and the Sovereign Credit 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 Agency does intend to include the results of banks' calculations in its discussions with them, and to establish that adequate provisions are being made.

    • Implications of International Accounting Standard (IAS) no. 39 on the provisions assessed through Sovereign Credit Provisioning Matrix

      • CM-3.4.4

        The banks should continue to apply the Sovereign Credit 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 Agency to discuss the issues before booking such provisions.