General Provisions

Definition

General provisions (GP, also general loan-loss reserves) is a regulatory term denoting reserves created against the possibility of credit losses not yet identified

Capital Treatment under Basel II/III

When GP do not reflect a known deterioration in the valuation of particular assets, these reserves qualify for inclusion in Tier 2 Capital. Where, however, provisions or reserves have been created against identified losses or in respect of an identified deterioration in the value of any asset or group of subsets of assets, they are not freely available to meet unidentified losses which may subsequently arise elsewhere in the portfolio and do not possess an essential characteristic of capital. Such provisions or reserves should therefore not be included in the capital base.

General provisions/general loan-loss reserves that qualify for inclusion in Tier 2 under the terms described above do so subject to a limit of

• 1.25 percentage points of risk weighted assets to the extent a bank uses the Standardised Approach for credit risk; and
• 0.6 percentage points of credit risk-weighted assets to the extent a bank uses the IRB Approach for credit risk.

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