THE Hong Kong Monetary Authority (HKMA) will issue a new regime of loan classifications next week in a bid to standardise loan classes within the banking sector and to keep track of loan quality. The loan reporting framework will not be effective until December, allowing banks time for the adjustment. In the regime, loans are categorised into performing and non-performing, with an in-between class of special mention. Under the non-performing category, loans are further subdivided into sub-standard, doubtful and loss. ''It enables us to do peer group analysis and monitor the adequacy of provisions made to loans that are non-performing,'' said David Carse, HKMA's deputy chief executive (banking). With banks' loan systems now not comparable, the authority can only look at the level of provisions in relation to the total assets of the industry. If the level goes up, the authority is not sure if banks have turned more conservative or the amount of non-performing loans have actually increased. The authority can also better monitor the trend in loan migration, such as how ''non-performing'' turns into other categories. ''It will give us early warning signals if there is any deterioration in loans,'' Mr Carse said. He expected banks to slowly adjust their loan classification system to the new structure. Because the new classes are not substantially different from some existing ones, he anticipated a mere swapping of categories for some banks. The standardised format will form the basis on which the banking regulator assesses a bank's loan provisioning systems. Unlike systems in countries such as Indonesia and Japan, the HKMA will not have a strait-jacket on the loan-provisioning system. ''Such rules are too mechanic and we do not want to override bank directors' own judgment,'' said Mr Carse. Nevertheless, a peer group analysis would be used to examine the adequacy of each bank's provisioning.