Provisioning
CM-3.3.4
Banks must maintain an adequate level of provisioning against the impairment of assets and problem exposures if their earnings and capital adequacy are to be measured correctly.
October 07CM-3.3.5
As a general rule, where there is a doubt about the collectability of a receivable, and security exists, provisions should equal the carrying value of the receivable less the net current market value of security.
October 07CM-3.3.6
Provisions of either type (specific or general) are made in relation to receivables, financing and investment assets in cases where there is doubt regarding collectability or an impairment of value. Refer to AAOIFI's FAS 11: Provisions and Reserves.
October 07CM-3.3.7
Provisioning should be carried in the respective books including bank's own books, unrestricted investment account holders' books and restricted investment account holders' books.
October 07CM-3.3.8
A general provision is an amount set aside to reflect a potential loss that may occur as a result of currently unidentifiable risks in relation to receivables, financing or investment assets. The amount reflects estimated losses affecting these assets attributable to events that have already occurred at the date of the statement of financial position, and not estimated losses attributable to future events.
October 07CM-3.3.9
The policy for provisioning should clearly contain provisions for segregating provisions relating to assets financed by own funds and those financed by investment account holders. In devising the policy, reference should be made to the Mudaraba contract.
October 07CM-3.3.10
A specific provision is an amount set aside to reflect an estimated impairment of value of a specific type of asset. In the cases of investment assets, it is the amount needed to write the assets down to cash equivalent value if this is lower than cost. Refer to AAOIFI's FAS 11: Provisions and Reserves.
October 07
