Question ID:
2014_925
Legal Act:
Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic:
Supervisory reporting
Article:
99
COM Delegated or Implementing Acts/RTS/ITS/GLs:
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)
Article/Paragraph:
Annex III, F 18.
Type of submitter:
Competent authority
Subject Matter:
FINREP template F 18.00 Information on performing and non-performing exposures – applicable approaches
Question:

According to point 154 of FINREP instructions (Annex V) when exposures are assessed as non-performing two approaches (“transaction” and “debtor” approach) can be applied. In addition point 155 of Annex V specifies a threshold (20%), which shall be taken into account. 1. Shall the threshold laid down in point 155 be applicable uniformly for retail and non-retail (for example corporate) debtors? a) No. The method laid down in point 155 considers all of the debtor’s exposures as non-performing if its exposures past due by more than 90 days represent at least 20% of its all on-balance sheet exposures. In our understanding this method is stricter than the “transaction approach” (e.g. in the case of retail debtors), but it is less stricter than the “debtor approach” (e.g. in corporate exposures). According to the “debtor approach”, when a debtor has an exposure past due by more than X days, all of the exposures to this debtor shall be considered and reported as past due by more than X days regardless that its past due exposures represents less or more than 20% of all its exposures. Therefore the method laid down in point 155 is less stricter than the debtor approach and so it doesn’t have any significance in the case of those debtors which shall be assessed as NPE according to the “debtor approach” in accordance with Article 178 of CRR (for example corporate exposures). It has significance only in the case of the “transaction approach”. OR b) Yes. The 20% threshold is applicable uniformly for all debtors (retail and non-retail debtors) and therefore only those debtors’ exposures should be considered as past due more than 90 days, whom past due exposures represent at least 20% of all their on-balance sheet exposures. In this case the 20% threshold laid down in point 155 is not an additional rule, it shall be applicable instead of the “debtor approach”. 2. How should the 20 % threshold be calculated? Does it mean that the gross carrying amount of only the past due (> 90 days) parts of the credit facilities or the gross carrying amount of the whole individual credit facilities that have any amounts past due by more than 90 days represents at least 20% of the total on-balance sheet exposures to a debtor? 3. According to point 155 the 20% threshold shall be considered only when the exposure is past due by more than 90 days. Does it mean the threshold shall not be taken into account in other past due categories? For example if a debtor has on-balance sheet exposures past due by more than 30 days the gross carrying amount of which represents 20% of the gross carrying amount of all its on-balance sheet exposures, this threshold shall not be applied and all of a debtor’s exposures shall not be reported in the “30 days < past due <= 60 days” category. Is our understanding right? 4. Point 155 says when a debtor has on-balance sheet exposures past due by more than 90 days the gross carrying amount of which represents 20% of the gross carrying amount of all its on-balance sheet exposures, all on- and off-balance sheet exposures to this debtor shall be considered as non-performing. But it doesn’t say that all exposures to this debtor shall be considered as past due by more than 90 days. Taking also into account the provisions of point 158 and 159, does this threshold work as a kind of debtor approach and pulls together all of the debtor’s exposures into one category? For example the debtor has an on-balance sheet exposure past due by more than 90 days, another exposure past due by more than 180 days and another that is not past due, but its past due exposures represent more than 20% of all its on-balance sheet exposures. In this case should all its exposures be reported in column 090 (Past due > 180 days <= 1 year) or should the exposures be reported separately according to their number of days past due in column 070, 080 and 090?

Background on the question:

According to point 154 of the instructions (Annex V) when exposures are assessed as non-performing, the “transaction approach” and the “debtor approach” can be applied. As laid down in Article 178 of CRR, generally “debtor approach” shall be applied but in the case of retail exposures, institutions may apply the definition of default at the level of an individual credit facility rather than in relation to the total obligations of a borrower, this is called “transaction approach”. “Debtor approach” means when a debtor has exposures past due by more than x days, all exposures to this debtor shall be considered as past due by more than x days. Point 155 contains further provisions: “When a debtor has on-balance sheet exposures past due by more than 90 days the gross carrying amount of which represents 20% of the gross carrying amount of all its on-balance sheet exposures, all on- and off-balance sheet exposures to this debtor shall be considered as non-performing.” How should this threshold be applied for “debtor approach” (non-retail debtors)?

Date of submission:
10/03/2014
Published as Final Q&A:
13/12/2019
EBA Answer:

1. Paragraph 226 (taxonomy 2.8) defines that exposures classified as non-performing in accordance with paragraph 213 shall be categorised as either non-performing on an individual basis (‘transaction based’) or as non-performing for the overall exposure to a given debtor (‘debtor based’).
Par. 227 of the Finrep instructions (v2.8) sets out that the 20% threshold shall be assessed on the basis of the gross carrying amount of all on-balance sheet exposures to the debtor, irrespective of whether it is classified as retail or not.
In particular, for the classification of retail exposures the institution may choose between a transaction and a debtor approach in accordance with the provisions laid down in Article 178 of Regulation (EU) 575/2013 (CRR). Institutions should choose the level of application between obligor and facility for all retail exposures in a way that reflects their internal risk management practices. Institutions may apply the level of an obligor for some type of retail exposures and the level of a credit facility for others where this is well justified by internal risk management practices.
As long as a transaction approach is used for retail exposures according to the above-mentioned Article 178, the provisions of paragraph 227 (taxonomy 2.8) shall be applied (“pulling effect”).
2. The 20% threshold is applied where the transaction-based approach is used. The threshold shall be assessed as follows:
a. The gross carrying amount of on-balance sheet exposures to a debtor that are past due by more than 90 days, is computed.
b. This amount is then compared to the total gross carrying amount of the entire debtor on-balance sheet exposures. This will not include off-balance sheet exposures, such as undrawn credit facilities.
c. If the amount in (a) is more than 20% of the amount in (b), then all the exposures to that debtor are assessed as non-performing, including the off-balance sheet exposures.
3. The 20% threshold in paragraph 227 (taxonomy 2.8) does not consider on-balance sheet exposures past-due less than 90 days in the numerator of the ratio “90 days past-due exposures/total on-balance sheet exposures”.
Exposures past-due by less than 90 days can however be considered as non-performing, in accordance with paragraphs 213 and 226 (taxonomy 2.8).
4. In accordance with paragraph 235 (taxonomy 2.8) past due exposures shall be reported separately within the performing and non-performing categories for their entire amount as defined in paragraph 96 (taxonomy 2.8). The exposures shall also be reported in the past-due time bands of non-performing in accordance with their individual past-due status. See QA 2015_2192.

Status:
Final Q&A