loan Classification, Provisioning and Credit Review

Frequency of Reviews Optimally, the credit review function can be used to provide useful continual feedback on the effectiveness of the credit process in order to identify any emerging problems. For example, the frequency of independent review of significant credits could be at least annually, upon renewal, or more frequently for ‘Special Mention’ loans, or when internal or external factors indicate a potential for deteriorating credit quality in a particular type of credit or pool of credits. A system of on-going or periodic portfolio reviews is particularly important for the provisioning process, which is dependent on the accurate and timely identification of problem credits. 4.7. Scope of Reviews The review should cover all credits that are significant. Also, the review typically includes, in addition to all credits over a pre-determined size, a sample of small credits, past due, non-accrual, renewed credits, restructured credits, credits previously considered non-performing or designated as ‘Special Mention’, related party credits, and concentrations and other credits affected by common repayment factors. The sample for each type of facility/portfolio selected for review should provide reasonable assurance that the results of the reviews have identified the major problems in the portfolio and reflect its quality as a whole, Financial institutions’ management is required to document the scope and the process of its reviews. The scope of credit reviews should be approved by the financial institutions’ Board of Directors and its Audit Committee on an annual basis or when any significant changes to the scope of reviews are made. 4.8. Depth of the Reviews These reviews should analyze a number of important aspects of selected credits, including: • Credit quality • Sufficiency of credit and collateral documentation • Proper lien perfection • Proper approvals • Adherence to any credit agreement covenants • Compliance with internal policies and procedures and laws and regulations • Appropriateness of the classification assigned to the credits • Adequacy of the provisions made against such credits Furthermore, these reviews should consider the appropriateness and timeliness of the identification of problem credits by credit officers and the adequacy of the overall level of provisions for the whole credit portfolio and for the nonperforming credits. 4.9. Review of Finding and Follow-Up Findings should be reviewed with appropriate credit officers, department managers, and members of senior management and any existing or planned corrective action should be clarified for all noted deficiencies and identified weaknesses, including the timeframes for correction. All noted deficiencies and identified weaknesses that remain unresolved beyond the assigned timeframes for correction should be promptly reported to senior management, the Board of Directors and the Audit Committee. 4.10. Workpaper and Report Distribution A list of credits reviewed, the date of the review and documentation (including summary analysis) to substantiate assigned classifications of credits should be prepared on all credits reviewed. A report that summarizes the results of the credit review should be submitted to the Board of Directors on at least a quarterly basis. In addition to reporting current credit quality findings, comparative trends can be presented to the Board of Directors that identify significant changes in the overall quality of the portfolio. Findings should also address the adequacy of and adherence to internal policies, practices and procedures, and compliance with laws and regulations so that any noted deficiencies can be remedied in a timely manner. Annex 1 SAMA Prudential Return Classification of Loans For the Quarter Ending Individually Assessed Loans Loans Assessed as a Group Total Loans (SR OOP's) (SR 000's) (SR OOP's) Current QTR Previous QTR QTR in Previous Year Current QTR Previous QTR QTR in Previous Year Current QTR Previous QTR QTR in Previ