National Bank Toughens Loan Classification Procedures.

The National Bank announced yesterday that starting August 1, 2007 new amendments to regulations on bank provisions for impairment losses on lending operations will come into force. The changes concern the credit assessment process of the borrower. According to the new amendments, banks will determine the grade of the borrower based on a total score derived from additional (subjective) and primary indicators. The regulations allow banks to make additional requirements of the borrower during financial assessment process, while the primary indicators are determined by the Central Bank. The weight of subjective indicators can not exceed 30% in the total score. Alexander Viktorov:  We applaud this move as before the National Bank only provided general guidance for the classification process which often allowed banks to overestimate their loan impairment provisions due to their tax optimization schemes. Thus banks often assigned a larger share of loans to lower grade categories with higher provision rates. This move will have a positive effect on the banking sector’s reported earnings which will start to materialize at the begining of next year.