Classification principles
 

9.1

Each LFI must establish a process to assess, monitor and classify each Credit Facility or each portfolio of facilities according to its current and expected credit-worthiness. This classification must form the basis for proactive Credit Risk management, risk mitigation and provisioning.
 

9.2

LFIs must adhere to the classification Stages as set out in the accompanying standards, or maintain a classification system that is mapped to the categories required under the accompanying standards.
 

9.3

The classification process must be documented based on the provisioning policy approved and regularly reviewed by the Board or, in the case of branches of foreign institutions, the Board of the head office or the senior management committee of the branch.
 

Provisioning
 

9.4

All LFIs must implement a process to estimate and document provisions associated with each Credit Facility in all Stages and in all credit portfolios, supported by sufficient organisational resources, in compliance with this regulation and the accompanying standards.
 

9.5

The provisioning process must be documented, organised and approved by Senior Management and the Board, and fully integrated into the LFI’s overall risk management process.
 

9.6

The policies and processes related to provisioning must ensure that provisions and write-offs are timely and reflect realistic repayment and recovery expectations, including appropriate expectations about future credit losses.
 

9.7

The methodologies and levels of provisions and write-offs must be subject to an effective review and validation process by a function independent from the relevant risk-taking function.
 

Restructured Credit Facilities
 

9.8

LFIs must pay particular attention to the classification of Restructured Credit Facilities as per the additional requirements articulated in the accompanying standards.