April 10, 2018

FSI of BIS published a paper on the identification and measurement of non-performing assets (NPAs). The paper focuses on the role that prudential regulation and supervision can play in facilitating the prompt identification and measurement of NPAs, by taking stock of cross-country practices.

The paper takes stock of NPA identification and measurement practices across select jurisdictions and identifies a number of regulatory and supervisory policy considerations that may be useful to supervisory authorities. It first outlines applicable accounting standards on NPA identification and measurement and summarizes the recent BCBS guidance on the prudential treatment of problem assets. Then, it discusses the key takeaways of the FSI survey on NPA identification and measurement practices across sampled jurisdictions. Next, the paper sets out policy options that supervisors may consider to enhance their NPA identification and measurement process. Finally, the paper provides brief concluding remarks, followed by an Annex that provides detailed information on NPA identification and measurement in the sampled countries.

The study reveals considerable differences across jurisdictions in the applicable accounting standards, which are exacerbated by divergent prudential frameworks that govern NPA identification and measurement. These differences make it difficult to make meaningful comparisons—both within and across jurisdictions—on key asset quality metrics, which are often a driver of a bank’s overall financial condition and operating performance. 

 

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Keywords: International, Banking, Accounting, NPLs, Identification and Measurement, Impairment, ECL, CECL, NPA, FSI, BIS

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