8.1 NPE write-offs

In accordance with the EBA Guidelines on credit risk management practices and accounting for expected credit losses,³⁷ uncollectability should be recognised in the appropriate period through loss allowances or write-offs. When the credit institution has no reasonable expectation of recovering contractual cash flow of the exposure it should lead to a partial or full write-off of the exposure (IFRS 9.B3.2.16.r).

³⁷ Guidelines on credit institutions’ credit risk management practices and accounting for expected credit losses (EBA/GL/2017/06).

A write-off may be done before legal actions against the borrower to recover the debt have been concluded in full. A write-off should not be considered to mean that the credit institution has forfeited the legal right to recover the debt; a credit institution’s decision to forfeit the legal claim on the debt is debt forgiveness.

Write-offs constitute a de-recognition event (IFRS 9.5.4.4). If cash or other assets are eventually collected, these collections should be directly recognised as income in the statement of profit or loss.

Credit institutions should maintain detailed records of all NPE write-offs performed on a portfolio-level basis.