Non-accrued status

3.1 For the purposes of unlikeliness to pay as referred to in Article 178(3)(a) of the Credit Risk: Internal Ratings Based Approach (CRR) Part, firms should consider that an obligor is unlikely to pay where interest related to credit obligations is no longer recognised in the income statement of the firm due to the decrease of the credit quality of the obligation.

Specific credit risk adjustments

3.2 For the purposes of unlikeliness to pay as referred to in Article 178(3)(b) of the Credit Risk: Internal Ratings Based Approach (CRR) Part, the following specific credit risk adjustments should be considered to be a result of a significant perceived decline in the credit quality of a credit obligation and hence should be treated as an indication of unlikeliness to pay:

(a) losses recognised in the profit and loss account for instruments measured at fair value that represent credit risk impairment under the applicable accounting framework; and

(b) losses as a result of current or past events affecting a significant individual exposure or exposures that are not individually significant that are individually or collectively assessed.

3.3 The specific credit risk adjustments that cover the losses for which historical experience, adjusted on the basis of current observable data, indicate that the loss has occurred, but the firm is not yet aware which individual exposure has suffered these losses (‘incurred but not reported losses’), should not be considered an indication of unlikeliness to pay of a specific obligor.