CBAK Revision of the Banking Rules
The Governing Board of the CBAK in its meeting held on the 7th of February approved the following Banking Rules:
The purpose of these changes in the framework of the banking rules is due to the changes in the financial sector and also due to changes in the CBAK approach to supervision.
Abstract on Rule II - Credit Limits and Concentrations
This Rule combines the existing Rule II and Rule V. It introduces the term “credit risk exposure” as the basis for limitation, rather than the more narrow term “credit” that previously was applied and interpreted to mean only loans. Exposures will include loans, leases, deposits placed, and investments made by a bank with a client or another bank. This is consistent with supervisory treatment in most regimes. The limits remain unchanged; these too are commonly found in most prudential frameworks. Exceptions to the Rule are clarified. The bases on which exposures should be combined and treated as a single credit also are clarified.
Abstract on Rule VI -Licensing of and Restrictions on Branches of Foreign Banks
This Rule was not given application previously because all banking entities were domestically incorporated. CBAK has in the past semester entertained two applications from foreign banks to establish branches in Kosovo. More applications for branches can be expected as Kosovo moves toward EU integration. This amendment is the first step in developing a necessary, coherent framework for licensing and supervision of foreign banks that will provide prudential comfort without being discriminatory. The changes in this Rule are minor and address technical or administrative matters, rather than prudential concerns.
Abstract
on Rule VII - Foreign Exchange Activities
The revised Rule makes several definitional changes for clarification, but does not change the prudential limits already in place. These limits are conservative, but in practice there is virtually no foreign currency exposure on banks’ balance sheets or in their activities.
Abstract on Rule VIII - Governance of Banks
This revised Rule consolidates and rewrites sections of the existing Rule VIII and Rule XIII (which has been rescinded). This revised Rule adds specific “fit and proper” characteristics, and brings into its scope controlling owners and major shareholders – a group that previously was not included. It also adds a requirement for a policy that incorporates code of ethics and conflict of interest considerations. Further, to increase transparency, it institutes a reporting requirement.
Abstract on Rule IX - Asset Classification, Provisioning for Loan Losses, Treatment of Accrued Interest and Treatment of Rescheduled Credit Exposures
This revision broadens the scope of applicability from loans to all credit risk exposures, including off-balance sheet items; it redefines the categories of classification, placing emphasis on all credit factors rather than just delinquency status, and emphasizes loss potential as opposed to documentation weaknesses; it incorporates treatment of overdraft lines of credit. Collateral recognition for classification and provisioning purposes is added. It allows banks to reclassify their exposures subsequent to examinations if changes in credit factors justify. It sets forth treatment for multiple credits to the same borrower, and enables “split” classifications for a single exposure. The Rule eliminates mandatory specific provisioning of “Standard” and “Watch” classifications, but prescribes that banks shall make general provisions for these on the basis of documented historical loss experience. Additionally, to improve the quality of financial information on file for analysis, a mandatory provisioning requirement of 1% is established for loans over 500,000 euro that lack financial statements. The Rule also establishes treatment for rebooking of charged-off exposures, rescheduling of troubled debt, and for proper accrual/non-accrual of interest income.
Abstract on Rule XX - Insider Credit Restrictions
This revised Rule incorporates definitions of “significant interest” and “principal shareholder” thus broadening the scope of the Rule to include those exposures that previously were outside regulatory limitations. The limit for employee loans has been removed. |
