La banque d'un monde qui change 2004 - BNP Paribas

Consolidated FInancial statementsNOTE 1 – ACCOUNTING POLICIES (CONT’D)part of their commitments. This is considered to be the caseof all loans on which one or more instalments are morethan three months overdue (six months in the case ofreal estate loans and twelve months for loans to localgovernments), as well as loans for which legal collectionprocedures have been launched. When a loan is classifiedas doubtful, all other loans and commitments to the debtorare automatically assigned the same classification.A provision is booked on these loans, for an amountcorresponding to the portion of the outstanding principalthat is not expected to be recovered plus unpaid interest.In all cases, the provision at least covers the total amountof accrued interest, unless the value of the guarantees heldby the bank covers the principal and all or part of the interestdue. Guarantees include mortgages and pledges on assets,as well as credit derivatives acquired by the Bank as aprotection against credit losses.In the case of doubtful loans where the debtor has resumedmaking regular payments in accordance with the originalrepayment schedule, the loan is reclassified as sound.Doubtful loans that have been restructured are alsoreclassified as sound, provided that the restructuringterms are met. If a restructured loan reclassified as soundis not at market terms, it is recorded in a separate accountat nominal value less a discount corresponding tothe difference between the new interest rate and the lowerrate between the original rate of interest and the marketrate prevailing at the time of the restructuring. If anyinstalments on a restructured loan are not paid, whateverthe terms of the restructuring, the loan is permanentlyreclassified as irrecoverable.Small loans to private individuals in France which havebeen the subject of a “Neiertz Act” restructuring (loans toconsumers who have accumulated unmanageable levelsof debt) are reclassified as sound only when the accountmanager is satisfied that the client will be able to fulfilhis or her repayment commitments until the entire loanhas been repaid. No discount is applied to loans that arereclassified as sound, mainly by the specialised creditcompanies. However, a statistical provision is recorded,based on the estimated risk of losses. This provision isat least equal to the sum of the discounts that wouldhave been deducted from the loans’ carrying value.Irrecoverable loans include loans to borrowers whose creditstanding is such that after a reasonable time recordedin doubtful loans, no reclassification as sound loans isforeseeable, loans where an event of default has occurred,restructured loans where the borrower has once againdefaulted and loans classified as doubtful for more than oneyear that are in default and are not secured by guaranteescovering substantially all of the amount due.Irrecoverable loans are written off when all legal and otheravenues open to the Bank to secure payment of the amountsdue have been exhausted.Interbank and customer items are stated at their nominalvalue plus accrued interest. Discounts on restructured loanscalculated as described above are deducted from the carryingvalue of the loan and amortised over the remaining life ofthe loan by the yield-to-maturity method.Provisions for credit risks on assets are deducted from thecarrying value of the assets. Provisions recorded underliabilities include provisions related to off balance sheetcommitments, provisions for losses on interests in real estatedevelopment programmes, provisions for claims and litigation,provisions for unidentified contingencies and provisionsfor unforeseeable industry risks.Additions to and recoveries of provisions, bad debts writtenoff, recoveries on loans covered by provisions and discountscalculated on restructured loans are recorded in the profitand loss account under “Net additions to provisions for creditrisks and country risks”, with the exception of additions toprovisions for accrued interest on non-performing loans whichare included in net banking income together with the interestaccrual. Amortisation of discounts on restructured loans,calculated by the yield-to-maturity method, is included in netbanking income along with the interest on the loans.Accrued interest is recorded periodically on sound loans– including restructured loans – and on doubtful loans thatare not classified as irrecoverable. Interest on doubtful loansclassified as irrecoverable is recorded in the profit and lossaccount on a cash basis.SecuritiesThe term “securities” covers interbank market securities(mainly promissory notes and mortgage notes); Treasurybills and negotiable certificates of deposit; bonds and other203BNP PARIBAS - ANNUAL REPORT 2004