Non-Performing Exposures Securitisation (CRR)

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1

Application and Definitions

1.1

This Part applies to:

  1. (1) a CRR firm; and
  2. (2) a CRR consolidation entity.

1.1A

  1. (1) A firm must comply with this Part on an individual basis.
  2. (2) A CRR consolidation entity must comply with this Part on a consolidated basis.
  3. (3) A firm or CRR consolidation entity to which this Part is applied in a sub-consolidation requirement must comply with this Part on a sub-consolidated basis, as set out in that requirement.

1.2

In this Part, the following definitions apply:

forbearance measure

means a concession by an institution towards an obligor that is experiencing or is likely to experience difficulties in meeting its financial commitments, where:

  1. (1) a concession may entail a loss for the lender and shall refer to either of the following actions:
    1. (a) a modification of the terms and conditions of a debt obligation, where such modification would not have been granted had the obligor not experienced difficulties in meeting its financial commitments;
    2. (b) a total or partial refinancing of a debt obligation, where such refinancing would not have been granted had the obligor not experienced difficulties in meeting its financial commitments;
  2. (2) at least the following situations shall be considered forbearance measures:
    1. (a) new contract terms are more favourable to the obligor than the previous contract terms, where the obligor is experiencing or is likely to experience difficulties in meeting its financial commitments;
    2. (b) new contract terms are more favourable to the obligor than contract terms offered by the same institution to obligors with a similar risk profile at that time, where the obligor is experiencing or is likely to experience difficulties in meeting its financial commitments;
    3. (c) the exposure under the initial contract terms was classified as non-performing before the modification to the contract terms or would have been classified as non-performing in the absence of modification to the contract terms;
    4. (d) the measure results in a total or partial cancellation of the debt obligation;
    5. (e) the institution approves the exercise of clauses that enable the obligor to modify the terms of the contract and the exposure was classified as non-performing before the exercise of those clauses, or would be classified as non-performing were those clauses not exercised;
    6. (f) at or close to the time of the granting of debt, the obligor made payments of principal or interest on another debt obligation with the same institution, which was classified as a non-performing exposure or would have been classified as non-performing in the absence of those payments;
    7. (g) the modification to the contract terms involves repayments made by taking possession of collateral, where such modification constitutes a concession.
  3. (3) the following circumstances are indicators that forbearance measures may have been adopted:
    1. (a) the initial contract was past due by more than 30 days at least once during the three months prior to its modification or would be more than 30 days past due without modification;
    2. (b) at or close to the time of concluding the credit agreement, the obligor made payments of principal or interest on another debt obligation with the same institution that was past due by 30 days at least once during the three months prior to the granting of new debt;
    3. (c) the institution approves the exercise of clauses that enable the obligor to change the terms of the contract, and the exposure is 30 days past due or would be 30 days past due were those clauses not exercised;
  4. (4) the difficulties experienced by an obligor in meeting its financial commitments shall be assessed at obligor level, taking into account all the legal entities in the obligor's group which are included in the accounting consolidation of the group, and natural persons who control that group.

[Note: This rule corresponds to Article 47b of the CRR as it applied immediately before its revocation by the Treasury]

Non-performing exposure or NPE

means:

  1. (1) any of the following:
    1. (a) an exposure in respect of which a default is considered to have occurred in accordance with the Credit Risk: Internal Ratings Based Approach (CRR) Part Article 178;
    2. (b) an exposure which is considered to be impaired in accordance with the applicable accounting framework;
    3. (c) an exposure under probation in accordance with paragraph (6) below, where additional forbearance measures are granted or where the exposure becomes more than 30 days past due;
    4. (d) an exposure in the form of a commitment that, were it drawn down or otherwise used, would likely not be paid back in full without realisation of collateral;
    5. (e) an exposure in the form of a financial guarantee that is likely to be called by the guaranteed party, including where the underlying guaranteed exposure meets the criteria to be considered as non-performing.
  2. (2) For the purposes of point (1)(a), where an institution has on-balance-sheet exposures to an obligor that are past due by more than 90 days and that represent more than 20% of all on-balance-sheet exposures to that obligor, all on- and off-balance-sheet exposures to that obligor shall be considered to be non-performing.
  3. (3) Exposures that have not been subject to a forbearance measure shall cease to be classified as non-performing where all the following conditions are met:
    1. (a) the exposure meets the exit criteria applied by the institution for the discontinuation of the classification as impaired in accordance with the applicable accounting framework and of the classification as defaulted in accordance with Credit Risk: Internal Ratings Based Approach (CRR) Part Article 178;
    2. (b) the situation of the obligor has improved to the extent that the institution is satisfied that full and timely repayment is likely to be made;
    3. (c) the obligor does not have any amount past due by more than 90 days.
  4. (4) The classification of a non-performing exposure as a non-current asset held for sale in accordance with the applicable accounting framework shall not discontinue its classification as non-performing exposure.
  5. (5) Non-performing exposures subject to forbearance measures shall cease to be classified as non-performing where all the following conditions are met:
    1. (a) the exposures have ceased to be in a situation that would lead to their classification as non-performing under the provisions above;
    2. (b) at least one year has passed since the date on which the forbearance measures were granted and the date on which the exposures were classified as non-performing, whichever is later;
    3. (c) there is no past-due amount following the forbearance measures and the institution, on the basis of the analysis of the obligor's financial situation, is satisfied that full and timely repayment of the exposure is likely. Full and timely repayment may be considered likely where the obligor has executed regular and timely payments of amounts equal to either of the following:
      1. (i) the amount that was past due before the forbearance measure was granted, where there were amounts past due;
      2. (ii) the amount that has been written-off under the forbearance measures granted, where there were no amounts past due.
  6. (6) Where a non-performing exposure has ceased to be classified as non-performing pursuant to paragraph (5) above, such exposure shall be under probation until all the following conditions are met:
    1. (a) at least two years have passed since the date on which the exposure subject to forbearance measures was re-classified as performing;
    2. (b) regular and timely payments have been made during at least half of the period that the exposure would be under probation, leading to the payment of a substantial aggregate amount of principal or interest;
    3. (c) none of the exposures to the obligor is more than 30 days past due.

[Note: This rule corresponds to Article 47a(3) to (7) of the CRR as it applied immediately before its revocation by the Treasury]

non-refundable purchase price discount

means the amount arrived at by subtracting the amount referred to in point (b) from the amount referred to in point (a), where:

      1. (a) is the outstanding amount of the underlying exposures of the NPE securitisation at the time those exposures were transferred to the SSPE; and
      2. (b) is the sum of the following:
        1. (i) the initial sale price of the tranches or, where applicable, parts of the tranches of the NPE securitisation sold to third party investors; and
        2. (ii) the outstanding amount, at the time the underlying exposures were transferred to the SSPE, of the tranches or, where applicable, parts of tranches of that securitisation held by the originator.

Where a discount is structured in such a way that it can be refunded in whole or in part to the originator or the original lender, such discount shall not count as a non-refundable purchase price discount.

NPE securitisation

means a securitisation backed by a pool of non-performing exposures the nominal value of which makes up not less than 90% of the entire pool’s nominal value at the time of origination and at any later time where assets are added to or removed from the underlying pool due to replenishment or restructuring.

Qualifying NPE securitisation

means an NPE securitisation that is a traditional securitisation where the non-refundable purchase price discount is at least 50% of the outstanding amount of the underlying exposures at the time they were transferred to the SSPE.

SSPE

has the meaning given in the Securitisation Part.

traditional securitisation

has the meaning given in the Securitisation Part.

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2

Calculation of Risk Weight

2.1

Subject to 2.2 and 2.4, the risk weight for a position in an NPE securitisation calculated by a firm in accordance with Article 254 or 267 of the CRR is subject to a floor of 100%, save where Article 263 of the CRR applies.

2.2

Where the risk weight for a qualifying NPE securitisation is calculated by a firm in accordance with Article 254 or 267 of the CRR, the firm must assign a risk weight of 100% to the senior securitisation position, save where Article 263 of the CRR applies.

2.3

A firm that applies the IRB Approach to any exposures in the pool of underlying exposures in accordance with Chapter 3 of Title II of Part Three of the CRR and that is not permitted to use, or does not use, own estimates of LGD and conversion factors for such exposures, must not use the SEC-IRBA for the calculation of risk-weighted exposure amounts for a position in an NPE securitisation.

2.4

By way of derogation from 2.1 and 2.2, save where 2.3 applies, a firm may calculate the maximum capital requirement for a position in an NPE securitisation in accordance with Article 268 of the CRR.

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