The European Banking Authority has published final amendments to its guidelines on default, extending the past-due treatment for non-recourse factoring from 30 to 90 days and confirming the appropriateness of the 1% NPV threshold for debt restructuring.
The European Banking Authority (EBA) has published its final report amending the Guidelines on the application of the definition of default. The amendments include targeted changes to better reflect aspects of non-recourse factoring and confirm that the 1% threshold for reductions in net present value loss (NPV threshold) remains appropriate for prudential default recognition.
The EBA has extended the specific technical past-due treatment at the invoice level from 30 to 90 days to better align with operational features of invoice-based receivables and reduce incorrect default classifications. The Guidelines have also been updated to align with amendments introduced by the Capital Requirements Regulation (CRR 3).
The current NPV threshold framework remains flexible, risk-sensitive, and consistent with accounting standards. It applies only to borrowers experiencing financial difficulties and restructurings resulting in losses, avoiding default misclassification. The framework’s alignment with other default thresholds ensures simplicity and efficiency.
Amending the NPV threshold, such as increasing it, could undermine efforts to reduce non-performing loans and weaken the reliability of capital and provisioning assessments. Such changes would involve operational costs and could reduce banking sector resilience, discouraging proactive debt restructuring to support borrowers.
Legal references include Article 178 of Regulation (EU) No 575/2013 and Article 178(7) of the CRR, as amended by Regulation (EU) 2024/1623. The EBA was mandated to review and update the guidelines to provide sufficient flexibility for institutions in defining a diminished financial obligation and encouraging debt restructuring.
