ACCOUNTANTS have lauded the recent attempt by the Monetary Authority to introduce a loan classification system, which is generally perceived as the first step to greater supervision of the way banks make provisions for loans.
Coopers & Lybrand audit division manager Johnnie Cheng welcomed the authority's proposal as a ''good step in the right direction that can ultimately lead to the creation of a standardised loan classification system in the banking sector''.
The authority, in an attempt to get information on the non-performing assets of financial institutions, issued a consultative paper proposing to classify loans into three types according to the repayment situation.
Modelled on the US system, loans can be categorised as performing, special mention or non-performing.
In the non-performing group, three sub-classes are used to distinguish the degree of delinquency - substandard, doubtful and lost.
''Given the detailed description on each category, the supervisor can narrow the judgmental discretion exercised by different banks' management in classifying loans,'' Mr Cheng said.
