European Banking Authority consults on amended definition of default guidelines while keeping the 1% NPV loss threshold for restructurings

The European Banking Authority (EBA) has launched a public consultation on draft amended Guidelines on the application of the definition of default under the Capital Requirements Regulation (CRR). The draft proposes to maintain the existing 1% threshold for net present value (NPV) loss in debt restructuring when assessing whether an obligor’s obligation has diminished. Retention of the 1% NPV loss threshold is justified on the basis that the current framework is already flexible and risk-sensitive, supports restructuring without misclassifying defaults, and is aligned with accounting principles, while also preserving consistency with prudential standards to limit arbitrage and support progress on non-performing loans. The EBA also proposes, alongside changes linked to the revised CRR, to extend the exceptional treatment of days past due at invoice level for non-recourse factoring arrangements from 30 to 90 days to better reflect the economics of purchased receivables. While the EBA is considering a shorter probation period than one year, such as three months, for certain forborne exposures to support more proactive restructuring, this change is not included in the draft as it would widen the gap between the definitions of non-performing exposures and default. Comments are due by 15 October 2025. A public hearing will be held by conference call on 3 September 2025, with registration required by 29 August 2025, and submissions will be published after the consultation closes unless confidentiality is requested.