# **Section 9: Asset Classification, Provisioning, and Write-offs**

With 17 questions, Section 9 highlights the fact that, at least on paper, EMDEs tend to have a more comprehensive and stricter asset classification, provision, and write-off framework than advanced economies (Table A9). For example, while 96 percent of EMDEs have an asset classification system under which banks have to report the quality of their loans and advances, only 58 percent of advanced economies report having such a system in place. Similar differences between advanced and EMDEs exist when it comes to the coverage of asset the classification system, the minimum levels of specific provisions for loans and advances, the regulatory requirements for general provisions on loans and advances, and the requirement for banks to write off non-performing loans after a specific time period. Furthermore, the median for the maximum time that a loan or advance can be non-performing before it has to be written off is 12 months among EMDEs, while this figure is 18 months for advanced economies.

Most of the questions in Section 9 were new and, therefore, it is hard to document any changes relative to the 2007 survey. The only major measurable change that is observed between the two rounds is regarding the accrued, though unpaid, interest/principal entering banks’ income statement while the loan is classified as non-performing. The share of countries responding positively to this question increased by two-folds, from 14 percent in 2005 to 28 percent in 2010, with a larger increase happening among EMDEs.

**Table A9. Asset** **<u>Classification, Provisioning, and Write-off: Selected Responses</u>**

||**ALL**|**ADV**|**EMDEs**|
|---|---|---|---|
|**A. Asset Classification **|**% Yes**|**% Yes**|**% Yes**|
|Do you have an asset classification system under which banks have to report the<br>qualityof their loans and advances usinga common regulatoryscale?|86|58|96|
|Does Asset classification system:<br>Apply to all commercial banks?<br>Cover all types of borrowers (e.g. including government)?|95<br>86|77<br>73|100<br>90|
|Cover all loans and advances to a borrower?|90|69|96|
|Impose a uniform classification requirement for specific borrowers|36|12|43|
|Are banks allowed to upgrade the classification of a loan or advance immediately<br>after it has been restructured?|33|41|31|
|**B.**<br>**Provisioning and Write-off**|**% Yes**|**% Yes**|**% Yes**|
|Are there minimum levels of specific provisions for loans and advances that are set<br>bythe regulator?|71|19|91|
|Is there a regulatory requirement for general provisions on loans and advances?|63|36|73|
|Do you require banks to write off non-performing loans after a specific time period?|40|14|49|
|Does accrued, though unpaid, interest/principal enter the bank's income statement<br>while the loan is classified as non-performing?|28<br>(14)|39<br>(31)|23<br>(8)|
|If a customer has multiple loans and advances and one of them is classified as non-<br>performing,are all the other exposures classified as non-performingas well?|53<br>(50)|48<br>(35)|54<br>(55)|
|**C. Some Additional Information**|**Median**|**Median**|**Median**|
|What is the maximum time (in months) that a loan or advance can be non-performing<br>before it has to be written off?|12|18|12|
|Up to what level (if any) is specific provisions tax deductible?|0|0|1|
|Up to what level (if any) is general provisions tax deductible?|0|0|0|

Source: Calculations based on the 2011–12 Bank Regulation and Supervision Survey, which reflects values as of 2010. Values in parentheses refer to the 2007 Bank Regulation and Supervision Survey, which captures data as of 2005. ADV: advanced economies, EMDEs: emerging and developing economies (Table 1 provides the complete list of countries).

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