This excerpt taken from the BCH 20-F filed Jun 24, 2005.
Classification of Loan Portfolio: Models Based on the Individual Analysis of Borrowers
An individual analysis of the borrower is necessary if the borrower is a large or complex business, or one to which the bank has no previous exposure. Models based on the individual analysis of borrowers require that the bank assign a risk category level to each borrower and its respective loans. In making such a determination, a bank must consider the following risk factors with respect to the borrower: (i) its industry or sector, (ii) its owners or managers, (iii) its financial situation, (iv) its payment capacity and (v) its payment behavior. Upon completion of this analysis, each borrower and loan must be classified to the following normal risk or above normal risk category levels:
Required Allowances. For loans in categories A1, A2, A3 or B, the board of directors of a bank is authorized to determine the levels of required allowances. Our board of directors has established the following levels of required allowances for loans classified as A1, A2, A3 and B:
For loans in categories C1, C2, C3, C4, D1 or D2, we must have the following levels of allowances:
For a description of the categories and allowance percentages under the previous guidelines, see Statistical InformationClassification of Loan Portfolio and Allowances for Loan Losses under the Previous GuidelinesAllowance for Loan Losses under the Previous GuidelinesGlobal Allowances for Loan Losses.