The Basel Committee on Banking Supervision (Basel Committee) has published a consultative document on guidelines on the prudential treatment of problem assets, setting out definitions of non-performing exposures and forbearance.
In the consultation, the Basel Committee seeks views on definitions of the following key terms used by banks when performing credit risk categorisation:
- non-performing exposure – the Basel Committee proposes a definition based on criteria for categorising loans and debt securities that are centred around delinquency status (90 days past due) or the unlikeliness of repayment. It also clarifies the consideration of collateral in categorising assets as non-performing and introduces clear rules regarding upgrading a non-performing exposure to performing and the interaction between non-performing status and forbearance; and
- forbearance – the Basel Committee proposes a definition that 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 soundness before the discontinuation.
The deadline for comments is 15 July 2016.