This report amends the guidelines on the definition of default, maintaining the 1% threshold for net present value loss in debt restructuring. No changes are made to the probation period or moratoria, as this could lead to inconsistencies in default classification. Technical updates are also made to reflect changes introduced by the CRR3 regulation.
- Title: Report amending the Guidelines on the application of the definition of default (corrigendum)
- Author: European Banking Authority (EBA)
- Date: 16 July 2026
- Type: Guide
- Scope: Update of the guidelines on the definition of default according to Article 178 of Regulation (EU) No 575/2013 (CRR), with a particular focus on the treatment of debt restructurings, legislative moratoria, and specific situations such as factoring.
- Target audience: Competent authorities and financial institutions in the European Union.
- Sector: European banking and financial sector.
- Period: Update in 2026, taking into account recent regulatory developments, notably CRR3.
This final EBA report presents amendments to the guidelines on the definition of default (GL DoD) pursuant to Article 178 of the CRR, notably following changes introduced by CRR3. The main subject is the confirmation of maintaining the 1% net present value (NPV) loss threshold for default recognition during debt restructuring measures, as well as the review of other framework aspects such as the probation period, legislative moratoria, and the specific treatment of factoring.
Why it matters: The harmonized definition of default is a key pillar to ensure the robustness of prudential models (IRB), consistency of accounting provisions (IFRS 9), and financial stability. A too high threshold could delay default recognition, distort risk management, and compromise the reduction of non-performing loans (NPL) in the EU.
Main findings:
- The current 1% NPV threshold is deemed sufficient, flexible, and aligned with accounting principles, allowing restructurings without loss (e.g. maturity extension) without false default classification (p. 3-4, 8-9).
- Raising this threshold to 5% would create inconsistencies with other criteria (notably the 1% threshold for past due amounts), open regulatory arbitrage, and weaken the harmonized default definition (p. 9-10, 14-16).
- The one-year probation period before reclassification to non-default was considered to be shortened to 3-6 months in some cases, but this change was not adopted as it would contradict the definition of non-performing exposures (NPE) (p. 16-17).
- Legislative moratoria do not benefit from specific exemptions in the default definition, to preserve harmonization and avoid national derogations in crisis situations (p. 17-18).
- The treatment of factoring situations has been clarified: the overdue days threshold to avoid erroneous default classification is raised from 30 to 90 days at the individual invoice level, better reflecting the economic and administrative reality of this product (p. 18-21).
Conclusions: The current framework, with a 1% NPV threshold, is robust, proportionate, and sufficiently flexible to encourage preventive and meaningful restructurings. Any major modification would risk compromising comparability, data reliability, and financial stability.
Recommendations / decisions:
- Maintain the 1% NPV threshold for default recognition related to a decrease in financial obligation.
- No shortening of the probation period.
- No specific exemption for legislative moratoria.
- Adapt the treatment of factoring by increasing the overdue days threshold to 90 days.
- Publication of the amended guidelines, applicable from 19 October 2026, with an obligation for competent authorities to notify their compliance to the EBA by 17 September 2026.
- Following the revision of Article 178 of the CRR by CRR3, the EBA is mandated to review the guidelines on the definition of default, particularly to integrate the treatment of debt restructuring measures (forbearance) according to Article 47b CRR.
- The objective is to encourage institutions to engage in proactive, preventive, and meaningful restructurings, while ensuring a harmonized and robust definition of default.
- The document addresses the issue of proper default recognition in a post-pandemic and post-crisis context, where support measures (e.g. moratoria) have been numerous.
- The scope also includes the review of other framework aspects such as the probation period, legislative moratoria, and the specific treatment of factoring products.
- Limitations: The report does not modify the fundamental definition of default but clarifies and corrects certain technical and operational aspects. The provided document covers about 41 pages out of 69, so the summary focuses on the available part.
NPV Threshold for Debt Restructuring:
- The 1% net present value (NPV) loss threshold is maintained. It measures the real economic loss related to concessions granted (p. 3, 8).
- This threshold is aligned with IFRS9 accounting principles, notably the recognition of a loss linked to the modification of discounted cash flows at the original effective interest rate (p. 6-8).
- The threshold should not be adjusted according to the maturity or interest rate of the loan, as this would introduce inequalities and regulatory arbitrage risks (p. 8-9, 33).
- An increase to 5% would create inconsistencies with the 1% threshold for past due amounts and delay default recognition, contrary to the objective of NPL reduction (p. 9-10, 14-16).
Flexibility and Probation Period:
- The possibility to reduce the one-year probation period to 3-6 months for certain cases was studied (p. 16).
- This reduction was not retained as it would contradict the definition of non-performing exposures (NPE) which requires a one-year delay (p. 16-17).
Legislative Moratoria:
- Legislative and non-legislative moratoria do not benefit from specific exemptions in the default definition (p. 17-18).
- The current framework is considered sufficiently flexible to avoid automatic default classification when a moratorium is applied (p. 18).
- Introducing a derogation would weaken harmonization and allow national derogations in crisis situations, contrary to the stability objective (p. 17).
Factoring Treatment:
- Factoring is a specific product involving three parties: client, debtor, and factor (financial institution) (p. 18-19).
- Two types: with recourse to the client (exposure towards the client) and without recourse (direct exposure towards the debtor) (p. 19).
- For purchased invoices, the overdue days (DPD) rule is adapted: the 30-day threshold is raised to 90 days at the invoice level to better reflect economic and administrative reality (p. 20-21).
- This change aims to reduce erroneous default classifications, considering payment delays and long validation processes (p. 20-21).
Other Technical Updates:
- Removal of references to the discretion of 180 overdue days, now removed by CRR3 (p. 22).
- Replacement of the notion of "distressed restructuring" by "diminished financial obligation due to a forbearance measure" in accordance with CRR3 (p. 22).
- Update of references to the definition of non-performing exposures (NPE) according to CRR (p. 22).
Impact on Institutions:
- Default classification leads to impacts on accounting provisions (IFRS9) and capital requirements (RWEA), depending on standardized or IRB approaches (p. 10-12).
- These impacts may incentivize institutions to liquidate or sell non-performing exposures, which can negatively affect client relationships and reputation (p. 11-12).
- The current framework already integrates significant flexibility in the definition of financial difficulties and concessions, allowing viable restructurings without false classification (p. 12-14).
Economic and Stability Considerations:
- Rapid and harmonized default recognition is essential for financial stability, NPL reduction, and investor confidence (p. 14-16).
- The post-COVID context and climate risks justify prudence and maintaining the current framework (p. 16-17).
Public Consultation:
- 28 responses received, with debates on the relevance of the NPV threshold, alignment with IFRS9, and requests for more flexibility (p. 31-37).
- The EBA confirms maintaining the 1% threshold and the non-dependence of the threshold on loan characteristics, to preserve consistency and avoid arbitrage (p. 32-34).
- The EBA emphasizes that the default definition is a prudential framework distinct from accounting, even if some concepts are aligned (p. 36-37).
- The improvement in asset quality and increased resilience of the European banking system are recognized but do not justify relaxing the threshold (p. 38).
- Established Facts:
- The 1% NPV threshold is a reliable indicator aligned with actual accounting losses related to restructurings (p. 8-9).
- Raising this threshold to 5% would create regulatory inconsistencies and delay default recognition (p. 9-10).
- The one-year probation period is consistent with the NPE definition and will not be shortened (p. 16-17).
- The specific treatment of factoring with a 90-day threshold is better suited to economic reality (p. 20-21).
- Assumptions:
- Restructurings with NPV loss between 1% and 5% without other UTP indications are rare and mostly concern structural difficulties (p. 13-14).
- The current framework already offers sufficient flexibility for viable restructurings (p. 12-14).
- Interpretations:
- Maintaining the threshold at 1% favors rapid default recognition, essential for proactive risk management and financial stability (p. 14-16).
- Any major flexibilization would weaken harmonization, data comparability, and could encourage evergreening practices (p. 15-16).
- Uncertainties:
- The precise impact of changes on institutions' and borrowers' behaviors remains to be observed.
- The post-pandemic dynamics and climate risks could influence the future relevance of the framework.
- The 1% net present value loss threshold for default recognition related to a decrease in financial obligation is maintained.
- The one-year probation period before reclassification to non-default is not modified, to ensure consistency with the definition of non-performing exposures.
- No specific derogatory treatment is introduced for legislative moratoria, to preserve harmonization and avoid national derogations.
- The treatment of factoring situations is adjusted: the overdue days threshold to avoid erroneous default classification is raised from 30 to 90 days at the individual invoice level.
- The amended guidelines will be published in all official EU languages and will enter into force on 19 October 2026.
- Competent authorities must notify their compliance to the EBA before 17 September 2026.
- These measures aim to guarantee a harmonized, robust, and flexible default definition, essential for financial stability, prudent risk management, and support to borrowers in difficulty.
Synthesis note written from the full document by DataSAI Academy. This note comes from the scientific library of the DataSAI Academy, open to all.