The Basel Committee on Banking Supervision (Basel Committee) has published final guidelines that are intended to complement the existing accounting and regulatory framework in relation to asset categorisation. Specifically the guidelines provide for definitions for two important terms – “non-performing exposures” and “forbearance”.
The definition of non-performing exposures introduces harmonised criteria for categorising loans and debt securities that are centred on delinquency status (90 days past due) or the unlikeliness of repayment. It also clarifies the consideration of collateral in categorising assets as non-performing. The definition focuses on a debtor basis, but allows categorisation of exposures as non-performing on a transaction basis for retail exposures. It also introduces rules regarding the upgrading of a non-performing exposure to performing and the interaction between forbearance and non-performing status.
The definition allows forborne exposures to be categorised as performing or non-performing exposures. It also sets out criteria for the discontinuation of the forbearance categorisation and emphasises the need to ensure a borrower’s financial soundness before the discontinuation.
The definitions are intended to be used in the following contexts:
- supervisory asset quality monitoring, including so that supervisory colleges can obtain a more consistent basis for comparison across jurisdictions;
- banks’ internal credit categorisation systems for credit risk management purposes;
- Pillar 3 disclosure on asset quality;
- Dissemination of data for asset quality indicators; and
- A reference point for other relevant working groups of the Basel Committee.