European Banking Authority amends default definition guidelines with 90 day non-recourse factoring treatment and no change to 1% NPV restructuring threshold

The European Banking Authority has published a final report amending its Guidelines on the application of the definition of default. The changes are targeted mainly at non-recourse factoring and alignment with the Capital Requirements Regulation as amended by CRR 3, while the EBA has decided to keep the existing 1% threshold for net present value loss in debt restructuring as the trigger for prudential default recognition. For non-recourse factoring, the specific technical past-due treatment at individual invoice level is extended from 30 days to 90 days to better reflect invoice-based receivables and reduce incorrect default classifications. The report also updates the guidelines to reflect CRR 3, including replacing references to distressed restructuring with diminished financial obligation due to a forbearance measure and removing references linked to the former 180-day past-due discretion. At the same time, the EBA concluded that the current 1% NPV threshold remains sufficiently flexible and risk-sensitive, applies only where borrowers face financial difficulties and a restructuring results in loss, and should not be raised because that could weaken default recognition and create operational and model change costs. The final text does not introduce changes to the one-year probation period for return to non-default status or specific new rules for moratoria. The guidelines will be translated into the official EU languages and then published on the EBA website. Competent authorities will have two months after publication of the translations to notify the EBA whether they comply, and the amended guidelines will apply three months after publication in all EU official languages.