This document provides guidance to banks and banking supervisors on recognition and measurement of loans, establishment of loan loss allowances, credit risk disclosure and related matters. It sets out banking supervisors’ views on sound loan accounting and disclosure practices for banks and serves as a basic framework for supervisory evaluation of banks’ policies and practices in these areas.
The paper states the overall objectives of the Basel Committee in addressing the topic of sound practices for loan accounting and disclosure. It summarises key terms and ties this guidance to the credit risk management process. The paper provides guidance on sound practices with respect to key loan accounting issues, such as the initial recognition and measurement of loans, subsequent measurement of impaired loans, the establishment of loan loss allowances, and income recognition. It also presents sound disclosure practices focusing on the credit risk in the loan portfolio. It also includes a brief discussion of the role of supervisors in assessing a bank’s management of asset quality and the adequacy of loan loss allowances.
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