Definition of default: material credit obligations

2.1 BIPRU 4.3.56(2)R requires a default to be considered to have taken place when the obligor is more than a defined number of days past due on any material credit obligation to the firm.

2.2 The PRA has not prescribed a threshold for materiality. However, in order for materiality thresholds defined by firms to be acceptable they should be expressed in relation to total exposures, rather than overdue amounts.

Definition of default in retail portfolios: non-compliance on the grounds of immateriality

2.3 The PRA will make use of the non-compliance on the grounds of immateriality provisions of BIPRU 4.1.25R and BIPRU 4.1.27G to accommodate non-compliance by a firm with the full definition of default set out in the BCD, provided a firm can demonstrate that the aggregate effect of all areas of non-compliance with BIPRU is immaterial.

2.4 In respect of retail portfolios other than mortgage exposures caught by the LGD floor, restriction of the definition of default to days past due rather than the full definition may be automatically considered immaterial as a standalone issue, and will not therefore prevent firms from using the IRB approach. This is because we expect the capital requirements that would result to be higher than if the full definition of default were used.