The European Banking Authority (EBA) has opened a public consultation to gather views on its draft amended guidelines concerning the application of the definition of default under the Capital Requirements Regulation (CRR).
As part of its proposals, the EBA has recommended retaining the current 1% threshold for net present value (NPV) loss in debt restructuring. This decision reflects the authority’s approach to balancing institutional flexibility with the need to maintain strong risk management standards.
Stakeholders will have until 15 October 2025 to submit their feedback on the consultation.
The proposal to maintain the 1% threshold is underpinned by three main factors.
Firstly, the EBA considers the current framework to already be sufficiently flexible and risk-sensitive, supporting effective restructuring without misclassification of defaults while aligning with accounting principles.
Secondly, the EBA believes that retaining consistency with prudential standards will help to preserve the progress made in reducing non-performing loans and prevent regulatory arbitrage.
Thirdly, a stable threshold supports reliable credit risk modelling, which is essential for accurate capital and provisioning assessments across banking portfolios under both Internal Ratings-Based (IRB) approaches and IFRS 9.
To promote proactive debt restructuring and ease the burden on debtors, the EBA has been exploring the possibility of reducing the probation period for certain forborne exposures from one year to a shorter duration, such as three months.
However, the draft amended guidelines have not incorporated this proposal as it would widen the gap between the definitions of non-performing exposures and default.
Additionally, the EBA is proposing to extend the exceptional treatment of days past due at invoice level from 30 to 90 days in non-recourse factoring arrangements.
Interested stakeholders can submit their feedback through the “send your comments” button on the EBA’s consultation page before the 15 October 2025 deadline.
A public hearing on the consultation will be held via conference call on 3 September 2025 from 11:00 to 12:00 CET, with registration required by 29 August 2025, 16:00 CET.
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