Banks Act, 1990 (Act No. 94 of 1990)

Regulations

Regulations relating to Banks

Chapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof

24. Credit risk: quarterly return

Directive and interpretations for completion of the quarterly return concerning credit risk (Form BA 210)

Subregulation (4) Matters relating to valuation of security/collateral

Purchase

(4)	Matters relating to valuation of security/ collateral

(a)	Tangible security

(i)

The value of tangible security means the net realisable value of the security, that is, the current market value of the security less any realisation costs. The reporting bank shall base the market value on a reliable valuation, that is, the price at which the relevant asset might be sold on the valuation date assuming—

•	a willing buyer and seller;

•	the transaction is conducted at arm's length;

•	a reasonable period for the sale has been allowed; and

•	the asset is freely exposed to the market.

(ii)	The reporting bank—

(A)

shall on a regular basis but not less frequently than once a year monitor the value of its collateral received, provided that the bank shall on a more frequent basis than once a year monitor the value of its collateral received when the market value of the said collateral is subject to significant change;

(B)	may apply statistical methods of evaluation such as reference to house price indices or sampling—

(i)	to update its valuation estimates; or

(ii)	to identify collateral in respect of which the value materially may have declined and which collateral value may need to be reassessed,

provided that the bank shall make use of a duly qualified professional person to evaluate any relevant property when relevant information indicates that the value of the said collateral materially may have declined relative to general market prices, or when a credit event such as default occurs.

(b)	Intangible security

The reporting bank shall include intangible security only when certainty exists in respect of the legal enforceability and value of the relevant security.

(c)	Principles that may influence the value of tangible and intangible security

Principles that may influence the value of tangible and intangible security to be reported on the form BA 210 include the matters specified below:

(i)

Prudence

Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

(ii)	Reliability

In order to be useful, information must also be reliable. Information has the quality of reliability when it is free of material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. Information may be relevant but so unreliable in nature or representation that its recognition potentially may be misleading.

(iii) Completeness

In order to be reliable, the information reported in the risk returns shall be complete within the bounds of materiality and cost. An omission may cause information to be false or misleading and thus unreliable and deficient in terms of its relevance.

(d)	When the value of any relevant security or collateral exceeds the relevant exposure value to which it relates, the reporting bank shall limit the said valuation amount to be reported on the form BA 210 to the said exposure amount.