Palestine Monetary Authority

Palestine Monetary Authority

(2011/32) Circular No.

To all lending institutions operating in Palestine

Date: Thursday, February 24, 2011

Subject: Development of the Borrower Classification System

In the context of the Palestine Monetary Authority's continuous efforts to develop tools for reducing credit risks and preserving the quality of the banking facilities portfolio, the Authority has developed the current version of the credit classification system after reviewing all related elements that determine the risk level, in alignment with the Palestinian banking environment.

The following are the main amendments made to the developed version of the system:

First: Delay in Payment for 30 Days

Given the specific characteristics of Palestinian society and the reliance of most of its segments on monthly salary transfers to banks, which may occasionally be delayed by a few days at the beginning of each month, the current version has been developed so that the risk weighting for delayed installment payments does not exceed 30 days, generally for both institutions and individuals.

Second: Classification of Facility Guarantees

Efforts have been made to establish a direct link between guarantees and the facilities they cover, such that the status of a guaranteed facility directly impacts the guarantor if the borrower delays installment payments. Consequently, the guarantor's credit risk rating increases in the event of facility default, leading to the client being assessed with high risk. Furthermore, an increase in the number of facilities guaranteed by a single client will also raise the risk level, even if the client consistently pays the facility installments on time.

Third: Independent Credit Card Limits

To reinforce the Authority's future orientation toward shifting from cash (paper) usage to plastic card usage, including credit cards, the variable has been developed by adjusting the risk weighting for credit card holders. The risk level has been reduced to the minimum for clients who fully utilize their credit card limits and adhere to scheduled installment payments.

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Ramallah - Al Bireh P.O. Box 452 - Tel: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps

Ramallah – Al Bireh – P.O. Box: 452 – Phone: 02-2409920 – Fax: 02-2409922 Gaza – P.O. Box: 4026 – Phone: 08-2825713 – Fax: 08-2844487