Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p14
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 37425–40517

or anticipated deterioration in asset quality and expected credit losses.
87.         An ADI must ensure that valuation, classification and provisioning for material non-performing exposures are conducted on an individual exposure basis.
88.         An ADI must regularly assess any trends and concentrations in risk and risk build-up in relation to credit exposures and take into account any observed concentration in the risk mitigation strategies adopted and the potential effect on the efficacy of the mitigant in reducing loss. An ADI must consider the adequacy of provisions in light of this assessment.

Non-performing exposures
89.         For the purposes of this Prudential Standard, non-performing exposures must be measured as the whole amount of the exposure including where non-performance relates to only a part of the exposure, for example, unpaid interest. For off-balance sheet exposures, the whole exposure is the entire notional amount.
90.         Collateral and other risk mitigation arrangements must not directly influence the categorisation of an exposure as non-performing.
91.         Collateral may be considered, along with other factors, in assessing whether a borrower is likely to pay. Collateralisation must not influence the past-due status, including the counting of past-due days and the determination of the exposure as non-performing. An exposure must be classified as non-performing where it meets the definition of non-performing even if the collateral value exceeds the amount of the past-due exposure.

Off-balance sheet exposures
92.         An ADI must classify off-balance sheet exposures as non-performing where the ADI has cause to believe that it is unlikely to recoup, in a timely manner, the full amounts it may be required to advance.
93.         Commitments must also be classified as non-performing if the creditworthiness of a borrower has deteriorated to an extent that the timely repayment in full by the borrower of any potential drawdown or associated interest payments or fees is unlikely.
94.         If an ADI considers it unlikely that it will receive timely repayment, in full, of cash flow entitlements which are or will be due from a counterparty to a derivative transaction, it must classify such an exposure as non-performing. In this regard, an ADI must calculate its derivative transaction exposures to counterparties for the purposes of measuring non-performance under the standardised approach or the adjusted current exposure method prescribed in Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180). Potential exposure add-ons applied in calculating such exposures must reflect the nature of the individual facility involved. Derivative transaction exposures must be revalued regularly so as to maintain reasonably current assessments of the extent of credit risk attaching to these transactions.

Reclassification of non-performing exposures to performing
95.         An ADI may reclassify an exposure from non-performing to performing when all of the following criteria are met:
       (a)