How Banks Determine the Loans Classification (Credit Risk Classification) ?
Banks classify their existing loans based upon the days past due (DPD), the number of days passed since repayment due date without fully repaying the due amount for the oldest unpaid repayment notification. In order to comply with the risk method calculation, the DPD (days past due) value is calculated as the number of days between the loan's due date and the current system date of Core Banking.
Banks can apply different provision percentages for principal or for interest for each loan, based on this classification: the higher the delay period, the higher the provision percentage applicable and the risk classification.