Thematic Credit Review Report (2021-12-23)

Summary

This is a Thematic Credit Review Report issued by the Cayman Islands Monetary Authority (CIMA) on 23 December 2021, summarizing the findings of a review conducted from 18 March 2021 to 30 June 2021 of nine 'Selected Lending Institutions' (SLIs). The review assessed credit policies, corporate governance, credit risk classification, provisioning, restructuring practices, internal audit coverage, and collateral management, largely in the context of the impact of COVID-19 on loan portfolios in the Cayman Islands.

The report is informational rather than a binding rule: it describes good practices and areas for improvement observed across the reviewed institutions and notes that CIMA communicated deficiencies and specific remediation requirements bilaterally to each participating SLI (not disclosed in this report). It references existing legal and regulatory frameworks that institutions are expected to comply with.

• Monetary Authority Act
• Bank and Trust Companies Act
• Cooperative Societies Act
• Rule on Management of Credit Risk and Problem Assets
• Rules on Large Exposures and Credit Risk Concentration for Banks
• related Statements of Guidance

While the report does not itself create new binding rules for the wider industry, it signals CIMA's supervisory expectations for credit risk management practices, which banks and other lending institutions should take into account when reviewing their own credit risk frameworks, even though the specific corrective requirements were issued individually to the nine reviewed institutions rather than as generally applicable obligations in this report.

• Proper asset classification irrespective of collateral quality
• Timely reclassification of restructured facilities
• Adequate internal audit coverage of credit functions
• Clear communication to customers about the implications of payment concessions

Key obligations

• Institutions should develop, implement, and maintain mechanisms to clearly communicate the terms and implications of waiving loan payments to customers before granting such waivers, should a similar situation arise in future
• Institutions are expected to classify credit facilities based on both quantitative (e.g. days past due) and qualitative (e.g. financial difficulty) criteria, not solely on collateral quality
• When assessing a retail borrower's financial difficulty, institutions must consider all of that borrower's exposures and downgrade all related retail facilities even if individual facilities are less than 90 days in arrears
• Institutions are expected to classify connected parties/related corporate exposures on a group basis, including considering personal loans to UBOs and directors of corporate customers during periodic reviews
• Institutions must comply with the Rule on Management of Credit Risk and Problem Assets regarding reclassification of non-performing credit facilities to performing status
• Institutions should maintain adequately resourced internal audit functions capable of conducting regular reviews of the credit function

Applies to

banks, trust companies, cooperative societies, lending institutions supervised by CIMA