Contents

Topic Page

Introduction ........................................................................................................ (2)
Article (1): Citation .......................................................................................... (2)
Article (2): Scope of Application ................................................................................. (2)
Article (3): Classification of Credit Exposures .............................................................. (3)
Article (4): Modification of Contractual Terms with Customers ....................................................... (6)
Article (5): Provisions and Conditions for Transfers Between Credit Exposure Classification Categories and Testing Periods (8)
Article (6): Calculation of Impairment Allowances................................................................. (10)
Article (7): Provisions for Excluding Credit Exposures from the Financial Position Statement ......................... (12)
Article (8): Responsibility of the Bank's Board of Directors and Executive Management ........................................... (13)
Article (9): General Provisions ................................................................................... (16)

Introduction:
These instructions aim to define a framework for the classification of credit exposures at banks and hedging against credit risks in a manner consistent with standards issued by the Basel Committee and international best practices.
These instructions complement the requirements of the accounting standards in force regarding the classification of credit exposures and hedging against any expected credit losses, thereby enhancing consistency in the bases followed in determining the levels of high-risk and non-performing credit exposures at banks operating in the Kingdom for prudential purposes. The Bank's Board of Directors must adopt a credit risk management policy that defines the acceptable levels of such risks, and the Executive Management must manage the Bank's activities in accordance with that policy, as well as continuously monitor credit risk levels and trends and take necessary measures to manage their risks effectively, including building allowances against high-risk credit exposures.

Article (1): Citation
These instructions are titled (Instructions on Classification of Credit Exposures and Calculation of Impairment Allowances Against Them) and are issued as a basis for the provisions of Articles (32/e), (42/a/2 and 3), (61), and (99/b) of the Banking Law No. (28) of 2000 and its amendments.

Article (2): Scope of Application
These instructions apply to all banks operating in the Kingdom and branches of Jordanian banks and banking companies operating outside the Kingdom. The Bank's Board of Directors is responsible for adopting the necessary policies and procedures to ensure compliance with the requirements of these instructions.
The instructions of the host countries where Jordanian banks have a presence must be applied if they are stricter than the requirements of these instructions, and the Bank must comply with mapping between the requirements of these instructions and the requirements of the host authority's instructions.
For the purposes of applying these instructions, credit exposures include all types of direct credit facilities, debt instruments, and interest and commissions recorded within on-balance sheet assets, and off-balance sheet items that include the Bank's obligation to pay on behalf of the customer.

Article (3): Classification of Credit Exposures
For the purposes of these instructions, credit exposures are classified into the following categories:

Performing Credit Exposures Category
This category is characterized by evidence of the strength of the customer's current and future financial position based on a credit study showing sufficient expected cash flows to cover the obligations arising for the customer according to the agreed contractual terms, with the customer regularly paying those obligations at their due dates.

Under Review Credit Exposures Category (Performing) This category is characterized by any of the following characteristics:

• Credit exposures classified into Stage 2 according to the requirements of the instructions for applying International Financial Reporting Standard (9) No. (13/2018), unless any of the classification provisions within the Non-Performing Credit Exposures Category apply according to these instructions.
• Unpaid dues for a period equal to or exceeding (30) days and not exceeding (89) days.
• Current and demand accounts overdrawn for a period equal to or exceeding (30) days and not exceeding (89) days, with the period calculated from the date the account was overdrawn.
• The balance of direct facilities exceeding the granted limit (not defined by a repayment schedule) by more than (10%) of that limit continuously for a period equal to or exceeding (30) days and not exceeding (89) days, with the period calculated from the date the limit was exceeded by that percentage.
• An account that was restructured due to the customer facing financial difficulties preventing them from fulfilling their obligations at their due dates according to the agreed contractual terms. When carrying out this restructuring, the Bank must conduct the necessary assessment of the customer's credit position to ensure that the classification provisions within the Non-Performing Credit Exposures Category do not apply to that account, even in cases where the customer has no unpaid dues on the date of restructuring.
• Evidence indicating a deterioration in the customer's financial position affecting their ability to continue paying obligations at their due dates according to the contractual terms agreed upon at the time of granting.
• Application of any of the qualitative indicators for Stage 2 exposures set forth in the instructions for applying International Financial Reporting Standard (9) No. (13/2018).

Non-Performing Credit Exposures Category
This category is characterized by any of the following characteristics:

• Credit exposures classified into Stage 3 according to the requirements of the instructions for applying International Financial Reporting Standard (9) No. (13/2018).
• Unpaid dues for a period equal to or exceeding (90) days.
• Current and demand accounts overdrawn for a period equal to or exceeding (90) days, with the period calculated from the date the account was overdrawn.
• The balance of direct facilities exceeding the granted limit (not defined by a repayment schedule) by more than (10%) of that limit continuously for a period equal to or exceeding (90) days, with the period calculated from the date the limit was exceeded by that percentage.
• An account that is restructured during the testing period due to the customer facing financial difficulties preventing them from fulfilling their obligations at their due dates according to the existing contractual terms.
• Credit exposures belonging to a customer who has been declared bankrupt or to any company placed under voluntary or compulsory liquidation.
• The remaining portion of non-performing credit exposures for which a settlement was made with the customer due to facing financial difficulties, including the Bank's acquisition of collateral for the purpose of settling part of it, where this action is considered a rescheduling. This remaining portion is subject to the transfer provisions mentioned in Article (5) for the purpose of transferring it to the Under Review category.
• Credit exposures on which interest or commissions have been suspended.
• Evidence indicating a deterioration in the customer's financial position or the failure of any of their projects that they rely on primarily for repaying their obligations, or the issuance of court judgments against them affecting the sufficiency of available repayment sources to collect the full value of credit exposures belonging to the customer.
• Application of any of the qualitative indicators for Stage 3 exposures set forth in the instructions for applying International Financial Reporting Standard (9) No. (13/2018).

Non-Performing Credit Exposures are divided into (3) categories according to the standards listed below:

Standards | Credit Exposure Category

| Existence of probability of the Bank losing part of the existing credit exposures to the customer

OR | Existence of unpaid dues/suspension of payments for a period equal to or exceeding (90) days and not exceeding (180) days.
Sub-standard | Existence of probability of the Bank losing a significant part of the existing credit exposures to the customer OR | Existence of unpaid dues/suspension of payments for a period exceeding (180) days and not exceeding (365) days.
Doubtful | Existence of probability of the Bank losing most of the existing credit exposures to the customer OR | Existence of unpaid dues/suspension of payments for a period exceeding (365) days.
Doubtful/Loss

The following must be taken into consideration when classifying credit exposures into the categories specified in this Article:

• If the classification provisions within the Non-Performing Category apply to one of the customer's accounts, all credit exposures (all accounts including those recorded off-balance sheet that include an obligation on the Bank to pay on behalf of the customer) for the customer must be classified as Non-Performing. Exceptions are made for the customer's accounts related to projects with independent accounting, secured by rights of assignment or specific repayment sources and sufficient cash flows, and having no connection to the customer's other accounts, provided that the necessary assessment and documentation are carried out by the Bank.
• If restructuring is carried out due to financial difficulties according to the definition in Article (4) of these instructions for one of the customer's accounts, the restructured account must be classified at minimum into the Under Review category, provided that the customer's other accounts are eligible to remain in the Acceptable Risk category.
• If the customer whose all accounts are classified as Non-Performing belongs to a related customer group, the Bank must conduct the necessary assessment of all related customer accounts and carry out the necessary documentation regarding them to confirm that they are not affected by the credit exposures classified as Non-Performing. Otherwise, those accounts must be classified as Non-Performing.
• Indirect credit exposures of the customer (recorded off-balance sheet and including an obligation on the Bank to pay on behalf of the customer) are classified according to the qualitative indicators set forth in the instructions for applying International Financial Reporting Standard (9) No. (13/2018) in the absence of direct credit exposures to the customer.
• The Bank must adopt a mechanism to monitor the utilized balances from the overdraft limits granted to customers (the limit granted to finance working capital and does not include a specific schedule for withdrawal and repayment) and consider setting quantitative and qualitative criteria for classifying these limits that are stricter than the standards specified in this Article. These criteria must include determining expected turnover rates according to the customer's activity and overdraft idle periods (non-service of interest) with a minimum of the following:

Overdraft Idle Period | Classification Category Equal to or exceeding (30) days and not exceeding (89) days | Under Review Equal to or exceeding (90) days and not exceeding (180) days | Non-Performing / Sub-standard Exceeding (180) days and not exceeding (365) days | Non-Performing / Doubtful Exceeding (365) days | Non-Performing / Loss

Article (4): Modification of Contractual Terms with Customers
The objective of modifying any agreed contractual terms with the customer due to facing financial difficulties is to enable the customer to fulfill their obligations at their due dates, taking into account addressing the causes that led to their financial difficulties. Therefore, the modification process is based on a comprehensive credit study of the expected cash flows from the customer's activity, which is relied upon as a repayment source, and demonstrates the customer's ability to provide those cash flows at the due dates before proceeding with the modification of contractual terms. In case the Bank has doubts about the sufficiency of cash flows to repay the customer's full obligations, it must take the necessary hedging for any potential losses. For the purposes of these instructions, restructuring is defined as a modification of the agreed contractual terms with the customer due to facing financial difficulties at a time when those exposures are classified within the Performing Credit Exposures Category. Financial difficulties include, but are not limited to:

• Existence of unpaid amounts due from the customer for a period equal to or exceeding (30) days on the date of restructuring, with indicators of insufficient expected cash flows to repay their existing obligations with the Bank according to the existing contractual terms.
• Existence of a significant decline in cash flows limiting the customer's ability to repay their obligations according to the existing contractual terms.
  For the purposes of these instructions, rescheduling is defined as a modification of the agreed contractual terms with the customer at a time when those exposures have met the classification provisions within the Non-Performing Credit Exposures Category. The classification of credit exposures on which rescheduling was carried out must remain within the Non-Performing Category until the conditions specified in Article (5) of these instructions are fulfilled. The process of modifying the contractual terms referred to in items (b) and (c) above includes the following:
• Rearranging part or all of the customer's obligations under new contract(s).
• Modifying the value of installments or extending the life of the exposure.
• Granting a grace period or extending it.
• Capitalizing interest or commissions due for payment.
• Postponing the due date of installments or interest or commissions, whether they have become due or will become due in the future.
  When carrying out restructuring due to financial difficulties or rescheduling of credit exposures, the Bank must take all possible measures to facilitate the burden on customers to enable them to fulfill their obligations at their due dates without affecting the Bank's rights.
  A grace period for a customer must not exceed (18) months when restructuring due to financial difficulties and (12) months when rescheduling, even if the period includes the customer's obligation to pay interest. Syndicated loans are exempted from this with prior approval from the Central Bank of Jordan.
  The repayment period for credit exposures that have been restructured or rescheduled must not exceed (10) years for the corporate portfolio (except for credit exposures with an original contract duration exceeding (10) years). Regarding the retail portfolio, the requirements of Central Bank Circular No. (27/1/5780) dated 22/3/2023 must be complied with regarding this matter. New credit exposures may be granted up to (25%) of the existing credit exposure balance to a customer whose exposures or any of them have been classified within the Under Review Credit Exposures Category, provided the Bank has reached a conviction based on a comprehensive study of expected cash flows, supported by documented evidence, that the customer's financial position will improve. This increase must not be used to repay existing credit exposures to the customer or related parties at the Bank, but must be used exclusively to finance the customer's activities to enable them to rectify the status of their existing exposures. Existing credit exposures that have met the classification provisions as non-performing or any part thereof must not be repaid through arranging credit facilities granted by the Bank to any related customers to the customer or those having an influential interest in them or their relatives up to the third degree. No increase may be granted to existing credit exposures for any customer whose exposures have met the classification provisions within the Non-Performing Category according to the requirements of these instructions.

Article (5): Provisions and Conditions for Transfers Between Credit Exposure Classification Categories and Testing Periods

The classification category of credit exposures that have been restructured due to financial difficulties or rescheduled may not be modified to a better category unless the conditions contained in this Article are met.
The classification of credit exposures classified within the Under Review Category and restructured due to financial difficulties may be modified to the Acceptable Risk Category if all of the following conditions are met:

• A testing period of not less than (12) months has elapsed, with the period calculated from the due date of the first installment to the customer according to the new contractual terms.
• The customer's commitment to paying installments at their due dates according to the new contractual terms.
• The value of installments paid during the testing period must not be less than (5%) of the balance of the customer's direct credit exposures existing on the date of restructuring due to financial difficulties, plus interest and commissions accruing on those exposures during the testing period.
• If the Bank grants new credit exposures to the customer when restructuring due to financial difficulties or during the testing period (in addition to the existing balance on the date of restructuring due to financial difficulties), at least (15%) of the value of that increase must be repaid.
• Residential loans for individuals that are repaid in equal monthly installments over the life of the loan are exempted from item (3) above, such that the customer's commitment to paying installments at their due dates is monitored during the testing period without requiring a specific repayment percentage.
• Conducting the necessary assessment to verify the improvement of the customer's credit position and the non-application of any of the classification provisions for credit exposures within the Under Review Category specified in Article (3/a/2) of these instructions.
  The classification of credit exposures classified within the Under Review Category and not restructured due to financial difficulties may be modified to the Acceptable Risk Category if the improvement of the credit position of those exposures is verified and the reasons that led to their classification within the Under Review Category specified in Article (3/a/2) of these instructions are absent, without the need to undergo a testing period. If the classification provisions within the Non-Performing Category specified in Article (3/a/3) apply to credit exposures subject to the testing period specified in item (b) above during the testing period, they must be classified within the Non-Performing Category. The classification category may not be modified until the conditions specified below are fulfilled according to the actual situation at the time. The classification of credit exposures classified within the Non-Performing Category and rescheduled or classified as non-performing debt in light of restructuring due to financial difficulties during the testing period may be modified to the Under Review Category if all of the following conditions are met:
• A testing period of not less than (6) months has elapsed, with the period calculated from the due date of the first installment to the customer according to the new contractual terms.
• The customer's commitment to paying installments at their due dates according to the new contractual terms during the testing period.
• The value of installments paid must not be less than (5%) of the balance of the customer's direct credit exposures existing on the date of restructuring due to financial difficulties or rescheduling, plus interest and commissions accruing on those exposures during the testing period.
• Residential loans for individuals that are repaid in equal monthly installments over the life of the loan are exempted from item (3) above, such that the customer's commitment to paying installments at their due dates is monitored during the testing period without requiring a specific repayment percentage.
• Conducting the necessary assessment to verify the improvement of the customer's credit position and the non-application of any of the classification provisions for credit exposures within the Non-Performing Category specified in Article (3/a/3) of these instructions.
  If unpaid dues for a period equal to or exceeding (90) days accrue to the customer during the testing period specified in item (e/1) above, the aforementioned testing period (6 months) must be recalculated to start from the date of payment of those dues. The date of suspension of payments on which the classification of those exposures within the Non-Performing Category was based must be fixed for the purpose of calculating impairment allowances according to Article (6) of these instructions. If the customer completes the testing period specified in item (e/1) of this Article, the debt is transferred to the Under Review Category and is subject to another testing period within this Category of not less than (6) months. The classification of credit exposures classified within the Non-Performing Category and not rescheduled may be modified to the Under Review Category if the following conditions are met:
• A testing period of not less than (3) months has elapsed, with the period calculated from the date the customer started paying the dues owed.
• Conducting the necessary assessment to verify the improvement of the customer's credit position and the non-application of any of the classification provisions for credit exposures within the Non-Performing Category specified in Article (3/a/3) of these instructions.
  If unpaid dues for a period equal to or exceeding (90) days accrue to the customer during the testing period specified in item (h/1) above, the aforementioned testing period (3 months) must be recalculated to start from the date of payment of those dues.

Article (6): Calculation of Impairment Allowances
For the purpose of calculating the impairment allowance for direct credit exposures, the value of eligible collateral specified in Annex No. (1) is taken into account by deducting it from the principal of the credit exposures according to the mechanism specified in the items below.
An impairment allowance covering the full principal of direct credit exposures classified within the Non-Performing Category and not covered by any of the eligible collateral mentioned in the aforementioned Annex is prepared gradually, with a maximum of one year from the date of suspension of payments, as follows:

• (25%) when the definition of Sub-standard Credit Exposures applies.
• (50%) when the definition of Doubtful Credit Exposures applies.
• (100%) when the definition of Loss Credit Exposures applies.
  (c) An impairment allowance covering the full principal of direct credit exposures classified within the Non-Performing Category and covered by eligible tangible collateral is prepared as follows:
• If the value of the collateral is equal to or exceeds the principal of the credit exposures, an impairment allowance covering the full value of the credit exposures is prepared over (5) years at a rate of (20%) of the principal of those exposures annually, with the year calculated from the date of suspension of payments.
• If the value of the collateral is less than the principal of the credit exposures, an impairment allowance covering the full uncovered part in the first year or (20%) of the principal of the exposures, whichever is greater, is prepared, and the remaining amount is completed over the following four years equally, with the year calculated from the date of suspension of payments.
  An impairment allowance covering the full principal of direct credit exposures classified within the Non-Performing Category and covered by eligible financial collateral is prepared with a maximum of one year from the date of suspension of payments.
  An impairment allowance covering the full principal of direct credit exposures classified within the Non-Performing Category and guaranteed by the Jordanian Company for Loan Guarantees is prepared starting from the end of the third year from the date of suspension of payments gradually and equally over the years from the end of the third year until the end of the fifth year, while complying with recording a full allowance on the part not guaranteed by the Jordanian Company for Loan Guarantees or not corresponding to any of the eligible collateral specified in Annex No. (1) according to the requirements of these instructions. An impairment allowance at a rate of (5%) of the balance of direct credit exposures classified within the Under Review Category is prepared, after excluding the part covered by eligible collateral specified in Annex No. (1) and also excluding the part guaranteed by the Jordanian Company for Loan Guarantees. Impairment allowance is calculated on off-balance sheet credit exposures, which include the Bank's obligation to pay on behalf of the customer, using the same methodology adopted by the Bank for the purpose of calculating credit losses against those exposures according to the requirements of the instructions for applying International Financial Reporting Standard (9) No. (13/2018). Credit exposures to the Jordanian Government and guaranteed by it are treated without credit loss, in accordance with (Item Third/Thirdly/e/4) of the instructions for applying International Financial Reporting Standard (9) No. (13/2018). Interest and commissions on credit exposures must be suspended immediately upon the application of classification provisions to them as non-performing exposures, and they are not returned to income until the necessary conditions for transferring those exposures to the Under Review Category specified in Article (5) of these instructions are fulfilled. Credit exposures on which rescheduling was carried out or classified within the Non-Performing Credit Exposures Category in light of restructuring due to financial difficulties during the testing period are subject to the impairment allowance calculation provisions specified in this Article (i.e., continuing to record the allowance against them and suspending interest and commissions after rescheduling or restructuring). The recorded allowance against them may not be released, nor suspended interest and commissions returned to income, nor the date of suspension of payments modified until the necessary conditions for transferring the classification of those exposures to the Under Review Category specified in Article (5) of these instructions are fulfilled. Credit exposures are classified and impairment allowances are calculated quarterly according to the requirements of these instructions, such that expected credit loss allowances on credit exposures calculated according to the requirements of the instructions for applying International Financial Reporting Standard
  (9) No. (13/2018) are recorded on the Bank's financial statements (as a minimum), and any additional impairment allowance required by these instructions is added to it. For the purpose of determining additional allowances for each of the credit exposures classified within the Non-Performing Category and within the Under Review Category, the following is done:
• Comparing the results of the total allowances calculated against credit exposures classified into Stage 2 according to the requirements of applying the Financial Reporting Standards instructions No. (13/2018) with the total allowances calculated against credit exposures classified within the Under Review Category according to the requirements of these instructions, and recording any additional allowances required by these instructions.
• Comparing the results of the total allowances calculated against credit exposures classified into Stage 3 according to the requirements of the Financial Reporting Standards instructions No. (13/2018) with the total allowances calculated against credit exposures classified within the Non-Performing Category according to the requirements of these instructions, and recording any additional allowances required by these instructions.
  The Bank must, whenever the need arises to hedge against any potential deterioration in the quality of any credit exposures, record the necessary allowances for that purpose. The impairment allowance percentages specified in this Article of these instructions represent the minimum limits that banks must maintain.

Article (7): Provisions for Excluding Credit Exposures from the Financial Position Statement
The Bank must put in place policies and procedures for excluding direct credit exposures from the Financial Position Statement, while complying with the following:

• Credit exposures are excluded from the Bank's Financial Position Statement by a decision issued by the Bank's Board of Directors.
• Credit exposures excluded from the Financial Position Statement are recorded in a special register subject to supervision by an independent entity within the Bank, with all documents and evidentiary papers related to them preserved to ensure the preservation of the Bank's right to claim those debts according to the legal procedures to be followed.
• Credit exposures excluded from the Financial Position Statement are subject to periodic review by an independent entity determined by the Bank's Board of Directors at least once a year. In this review, the steps taken to collect the Bank's rights are evaluated, any weaknesses that led to the Bank's inability to collect its rights are reviewed, and necessary measures are taken to address them. The review report and recommendations are submitted to the Audit Committee emanating from the Bank's Board of Directors, and a copy is sent to the Central Bank attached with the semi-annual financial statements.
• Under no circumstances may any party that was or is related to the Bank be exempted from any part of their obligations. Necessary measures must be taken to claim any dues that accrued to related parties to the Bank. It is necessary to submit a periodic report from the Internal Audit Department to the Audit Committee emanating from the Bank's Board of Directors showing the volume of dues owed to related parties to the Bank and recommendations regarding them, and providing a copy of the report to the Central Bank.
  The Bank must exclude credit exposures covered by impairment allowances at a rate of (100%) from the Financial Position Statement, with a maximum of (5) years from the date those exposures were classified within the Non-Performing/Loss Credit Exposures Category. Exceptions are made for justified cases with prior approval from the Bank's Board of Directors. A detailed report on those exposures and the reasons for not excluding them from the Financial Position Statement must be prepared. Credit exposures may not be excluded from the Financial Position Statement before two years have passed since their classification within the Non-Performing/Loss Credit Exposures Category.

Article (8): Responsibility of the Bank's Board of Directors and Executive Management
The Bank's Board of Directors must adopt a strategy that defines the Bank's approach and procedures for early identification of credit exposures likely to be classified or already classified within the Non-Performing Category, and control mechanisms for their existing and expected levels, and determine practical plans to be followed to reduce the volume of those exposures within realistic timeframes. The Bank's Board of Directors must ensure that...