Circular 87 to Commercial Banks and Savings and Housing Banks: Loan Classification and Provisioning

Issued under article 43 of the decree of November 14, 1980, the circular sets out how commercial banks and savings and housing banks classify loans, build provisions for doubtful receivables and account for accrued interest. Loans fall into five classes: current, watch (à signaler), weak, doubtful and loss. Commercial loans are reclassified at least twice a year and consumer and housing loans every quarter, and a loan to a borrower in any impaired class moves that borrower's current loans to the watch class.

Minimum specific provisions are 1.5% of the outstanding balance for watch loans, 20% for weak, 50% for doubtful and 100% for loss loans, and banks also hold a quarterly general provision of 0.75% on loans without a specific provision. The circular takes effect on October 1, 1997, with reporting from the quarter ending March 31, 1998 and halved rates for weak, doubtful and loss loans until March 31, 1999. It sets penalties for misreported provisions and interest income and has annexes with the reporting forms.