Capital Implications of NPLs
CM-1.6.7
Capital levels and their projected trends are important inputs towards determining the scope of NPL reduction actions available to
licensees .Conventional bank licensees should dynamically model the capital implications of the different elements of their policy on NPLs, ideally under different economic scenarios. Those implications should also be considered in conjunction with the risk appetite framework as well as the internal capital adequacy assessment process (‘ICAAP’).Added: June 2022CM-1.6.8
Where capital buffers are slim and profitability low,
conventional bank licensees must include suitable actions in their capital planning, ICAAP and recovery plans which will enable effective management and sustainable clean-up of NPLs.Added: June 2022CM-1.6.9
Conventional bank licensees should also identify medium and long-term options for NPL reductions.Added: June 2022CM-1.6.10
A strong level of monitoring and oversight by risk management function in respect of the formulation and implementation of the NPL strategy (including the NPL operational plan) must also be ensured.
Added: June 2022CM-1.6.11
Conventional bank licensees must write-off loans which are deemed to be uncollectable in a timely manner.Added: June 2022
