Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Circular No. (39/2019)

To all banks operating in Palestine

Date: Thursday, 14 February 2019

Subject: International Financial Reporting Standard No. (9)

Further to Instructions No. (2018/02) dated 2018/04/01 regarding the requirements and guidelines for implementing International Financial Reporting Standard No. (9), and based on the information provided pursuant to Article (3), Clause (1) of the aforementioned Instructions as of the end of the second quarter of 2018 concerning progress made in implementing the said standard, along with a letter from the external auditor addressing their concurrence with what is included in the bank's report and any clarifications regarding the progress report, we outline below the minimum key areas that must be included in the report as of 2018/12/31. The required information for the fourth quarter of 2018 must be submitted no later than 2019/03/15:

1. Methodology of the Expected Credit Losses (ECL) model, mechanisms for defining and documenting assessment and measurement methodologies for ECL and provision formation, along with definitions of relevant key terms.
2. Policies and procedures and their compliance with the requirements, guidelines, and principles outlined in the Instructions.
3. The automated system applied for calculating provisions in accordance with IFRS, its implementation date, and the availability of necessary data and information in banking systems.
4. Development of probability of default (PD) and loss given default (LGD) mechanisms and scenarios.
5. Definition of the event(s) that will lead to an increase in credit risk, thereby affecting classification across the different stages.
6. Formulation and development of appropriate procedures applied systematically and consistently to determine suitable provisions in line with PMA instructions and the Standard.

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Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

7. Basis for classifying credit exposures according to shared credit risk characteristics in case of portfolio-level assessment.
8. Internal control system for assessing and measuring credit risk.
9. Adoption and documentation of sound methodologies for handling policies, procedures, and controls to assess and measure credit risk on all credit-related exposures.
10. Definition of default, default periods, and due installments to ensure no deviation from this rule (in case of any actual deviation, the bank must record the existence of these differences and the reason for the deviation).
11. Procedures taken to calculate Stage 3 requirements in compliance with the Standard and applying forward-looking perspectives in forming provisions related to this stage.
12. Obstacles and how to address them, along with the relevant timeline.
13. Methodology for incorporating forward-looking macroeconomic indicators into the assessment.
14. System programming according to the methodology approved by the Board of Directors.

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Supervision and Inspection Department
Palestine Monetary Authority

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