Prudential Treatment of Problem Assets

In the name of Allah, the Most Gracious, the Most Merciful Saudi Arabian Monetary Authority Headquarters

Banking Circular
Ref:
Attachments:

Circular

To:
His Excellency,

With regards,

Subject: Prudential Treatment of Problem Assets.

The global financial crisis has demonstrated the difficulty of identifying and comparing banking data, particularly regarding the quality and nature of banks' assets and the mechanism for monitoring them in supervisory reports and disclosures. The Basel Committee on Banking Supervision recognized significant differences in practices among countries.

Therefore, the Committee issued guidelines for the treatment of problem assets, particularly non-performing loans and loans with modified terms (forbearance), regarding the scope of assessment criteria and the level of application by banks within the current accounting and regulatory framework. These guidelines will be applied in several areas, including:

• Monitoring and supervision of asset quality to make it more consistent for cross-country comparison.
• Banks' Internal Ratings-Based (IRB) systems for credit risk management purposes.
• Third-pillar disclosure of asset quality.
• Published data on asset quality indicators.

Based on the above, the Authority affirms the importance of banks and financial institutions complying with the guidelines on the treatment of problem assets issued by the Basel Committee on Banking Supervision (http://www.bis.org/bcbs/publ/d403.pdf). In case of inquiries, please contact Mr. Sulaiman Al-Jabrin (saljabrin@sama.gov.sa) or Mr. Tariq Javed (t_javed@sama.gov.sa).

Accept my highest regards,

Shamer bin Mohammed Al-Issa
General Manager of Banking Supervision
23/9/1438

Distribution Scope:

• All banks operating in the Kingdom

P.O. Box 2992, Riyadh 11169, Telegram Address: Markazi, Tel: 4633000, Fax: 4662414 Dated