On 14 April 2016, the Basel Committee on Banking Supervision (BCBS) published a consultation document on guidelines on the prudential treatment of problem assets and definitions of non-performing exposures and forbearance.
There are currently no consistent international standards for categorising problem loans. Accordingly, the BCBS has proposed two definitions to promote consistency in supervisory reporting and disclosures by banks. The proposed definitions are intended to complement the existing accounting and regulatory framework relating to asset categorisation.
The BCBS has asked for views on definitions of the following key terms:
- Non-performing exposures: The BCBS 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 rules on the upgrading of an exposure from "non-performing" to "performing" as well as for the interaction between non-performing status and forbearance.
- Forbearance: The BCBS proposes a definition which sets out criteria for when a forborne exposure can cease being identified as such and that emphasises the need to ensure a borrower's soundness before the discontinuation.
The consultation will close on 15 July 2016.