The Danish Financial Supervisory Authority published an updated sector notice explaining optional flexibilities that credit institutions can apply under Danish financial reporting rules when assessing impairments, focused on forbearance, significant financial difficulties and material breaches of contract. The notice replaces a 27 November communication and points to the executive order on financial reports for credit institutions and investment firms, and related interpretative guidance on significant increases in credit risk and credit impairment. On staging and rating, exposures with an objective indication of credit impairment (OIK) due to forbearance or significant financial difficulties may be placed in the weak part of stage 2 where there is no loss in the most likely scenario, and institutions can select an appropriate rating class within that weak stage 2 segment rather than automatically using the worst non-default rating; the weak part of stage 2 is described as cases with significant weakness indicators, typically where the 12-month probability of default exceeds 5.0%. For assessing OIK due to forbearance, institutions may on certain conditions factor in documented, probable support from group companies or ultimate owners, provided the customer is operationally and financially integrated, the supporter has the strength, willingness and incentives to prevent default, and the forbearance has no material impact on the exposure’s value, while loss-mitigating guarantees that do not affect default likelihood are excluded. The notice also sets conditions under which OIK due to forbearance may cease even if earlier forbearance terms remain, including that the customer is no longer in financial difficulty for reasons not driven by the forbearance and that any remaining value impact is negligible, while noting this does not change EU “probation” periods for reporting forborne exposures and for the treatment of non-performing exposures; on arrears, it notes that accounting rules do not prescribe a specific days-past-due backstop (even though CRR includes a 90-day backstop for regulatory default), and addresses prior practice of using 30 days past due in the accounting assessment in the context of good credit practice and early arrears management.
Danish Finanstilsynet 2025-12-15
Danish Financial Supervisory Authority sets out optional flexibilities in credit institutions’ financial reporting on forbearance, impairment staging and arrears criteria
The Danish Financial Supervisory Authority updated a sector notice on optional flexibilities for credit institutions under Danish financial reporting rules on impairments, focusing on forbearance, financial difficulties, and contract breaches. It allows classifying exposures with credit impairment indications in a weak stage 2 segment, with conditions for assessing forbearance and group company support. It clarifies that accounting rules do not mandate a specific days-past-due backstop, despite the CRR's 90-day regulatory default backstop.