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  • Identification of Non-performing Exposures

    • CM-1.8.9

      Non-performing exposures must always be categorised for the whole exposure, including when non-performance relates to only a part of the exposure, for instance, unpaid interest. For off-balance sheet exposures, such as loan commitments or financial guarantees, the whole exposure is the entire uncancellable nominal amount. All non-performing exposures will be classified as Stage 3 for the purpose of ECL calculations.

      Added: June 2022

    • CM-1.8.10

      The following exposures are considered as non-performing:

      (a) All exposures, including purchased or originated credit impaired (POCI), that are in default or impaired under Paragraph CM-1.8.6, where applicable;
      (b) All exposures that have experienced a downward adjustment to their valuation due to deterioration of their creditworthiness and classified as Stage 3 according to the applicable accounting framework;
      (c) [This Subparagraph was deleted in April 2023]; and
      (d) All other exposures that are not in default or impaired but nevertheless:
      (i) Relate to a counterparty that has other exposures that are past due for 90 days or more; and
      (ii) Where there is evidence that full repayment based on the contractual terms, original or, when applicable, modified (e.g. repayment of principal and interest) is unlikely without the licensee’s realisation of collateral, whether or not the exposure is current and regardless of the number of days the exposure is past due.
      Amended: April 2023
      Added: June 2022

    • CM-1.8.11

      The existence of collateral or guarantees must have no direct influence on the categorisation of an exposure as non-performing or its past due status, including the counting of past-due days and the determination of the exposure as non-performing, once the overdue days threshold has been met. However, conventional bank licensees may consider the collateral when assessing a borrower’s economic incentive (both positive and negative) to repay under the unlikeliness to repay criteria. Any recourse by the licensee must not be considered in this judgment. When the relevant criteria are met, the exposure must be categorised as non-performing even if the collateral value exceeds the amount of the past-due exposure.

      Added: June 2022

    • CM-1.8.12

      The classification of an exposure as non-performing must be applied as follows:

      (a) When any one of the material exposures to a non-retail counterparty is categorised as non-performing, all exposures to that counterparty must be categorised as non-performing (i.e. cross-default across obligor);
      (b) In the case of exposures to a retail counterparty, the definition of default may be applied at the level of a particular facility rather than at the level of the obligor. This would be appropriate when the licensee considers the risk of each product and source of repayments having different characteristics for each transaction. In the case of a retail counterparty with more than one exposure from the licensee, it must consider the non-performing or performing status of the other exposures when deciding about the status of a given exposure; and
      (c) In the case of exposures to a group, non-performing status can be applied at the counterparty level. This assumes that the licensee has a separate credit review and rating assigned for each counterparty within the group. At the same time, the licensee must consider the non-performing or performing status of the other group entities when deciding about the status of any of the group entities.
      Added: June 2022

    • CM-1.8.13

      For the purpose of CM-1.8.12 (a), where a single facility which represents 25% or more of the aggregate exposure to the obligor is non-performing a cross default is deemed to have occurred and, accordingly, all exposures to that obligor will be considered non-performing.

      Added: June 2022

    • CM-1.8.14

      With reference to Sub-Paragraph CM-1.8.12 (b), however, a default by a borrower on one retail obligation may not require the licensee to treat all other obligations to the licensee as defaulted and non-performing. In these cases, conventional bank licensees must carefully consider the categorisation and staging status of other exposures to the same counterparty (i.e. cross-product default). For example, if a customer has a retail personal loan and an auto loan with the licensee, a default on the personal loan must be considered when assessing the stage classification of the auto loan.

      Added: June 2022