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anubis wrote:@greeedy: Many thanks for your input!
The 54.6 Mn employee shares, I thought they were transferred back to people's bank, or is this lot different from that?
Also, can you kindly explain the idea behind a provisions reversal a bit more? May be in layman's terms? I'm bit new to these economic stuff
Thanks again!
You have got the answer for the first part. With regard to provisioning reversal, you need to understand how banks make provisions. See below abstracts from a Fitch Ratings;
Non-performing loans and advances
Non-performing loans and advances of banks & finance companies are classified into the following categories & specific loan loss provisions are made according to these classifications;
Irregular Accounts
Advances which are three months overdue but less than six months overdue.
Substandard Accounts
Advances which are six months overdue (but less than 12 months) in their payments or advances that display greater than normal risk of loss.
Doubtful Accounts
Advances with a high risk of partial default including those which are in arrears for between 12 and 18 months.
Loss Accounts
Advances which are considered unrecoverable including accounts which are over 18 months in arrears.
Provisioning
Specific Loan Loss Provision (Allowed under IFRS)
The following minimum provisions must be made based on the category of non-performing loan, but banks are free to make higher provisions if they desire. In making such mandated provisions, banks are allowed to set off the value of the underlying collateral. However, with a view to gradually improve provisioning standards, the CBSL has implemented new rules, effective January 2004, enforcing more prudent valuation criteria in assessing the collateral value that can be used for such set offs.
Classification Provision
Irregular No Provisions Mandated
Substandard Loans 20% of Unsecured Portion
Doubtful Loans 50% of Unsecured Portion
Loss Loans 100% of Unsecured Portion
General Loan Loss Provisions (Not allowed under IFRS)
While there are no guidelines on general provisions some banks maintain general provisions ranging from 0.5% - 1% of their loan portfolio.
[This general provision is not allowed under IFRS. And PLC states this as the reason for the reversal. However, they did not mention this in the prospectus]
The more stringent collateral valuation rule on provisioning requires banks to impose hair cuts on the carrying value of collateral in arriving at the unsecured portion for purposes of calculating minimum provisioning requirements
Basis for Discounting Value of Collateral Prior to Calculating Unsecured Exposure
Period NPL was Outstanding ============ % of Collateral that can be Counted as the Value of Security.
Outstanding for Over 6 Months ==============>75% of Forced Sale Value
Over 12m but Less than 24m ================>60% of forced Sale Value
Over 24m but Less than 36m ===============>50% of Forced Sale Value
Over 36m but Less than 48m ================>40% of Forced Sale Value
Over 48m ==============================>Management has Discretion to Apply Higher Hair Cuts
The underlying collateral or the security has to be valued at least once in three years by specified valuers. However, where the security is a residential property occupied by a borrower for residential purposes, the valuation can be carried out once in four years.
).
) in the process.
