Any exposure (including purchased originated exposures) which is assessed as impaired or otherwise is in default as determined in Section 8 of these Rules. In addition to Section 8 of these Rules, such indicators may include, but are not limited to:
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| i. | The borrower has a high risk of default or has defaulted; |
| ii. | Past due more than 90 days; |
| iii. | The borrower has an inadequate capacity to meet contractual cash flow obligations due to financial difficulty in the near term; |
| iv. | The collection of principal, commission income highly questionable and improbable; and |
| v. | Adverse changes in economic and business conditions in the near and longer term will only further negatively impact borrower's ability to fulfil obligations.
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Finance companies should consistently monitor stage 3 exposures to identify improvements in credit quality and determine eligibility for re-staging stage 3 exposures to stage 2 or stage 1. Finance companies should document the minimum eligibility requirement for re-staging stage 3 exposures, which should include, at minimum, all of the following conditions:
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| i. | The borrower does not have any material exposure (greater than 95% of total exposures) more than 90 days past due; |
| ii. | Exposure repayments have been made when due over a continuous repayment period (cure period excluding grace period, if any) of 12 months (9 months for restaging from Stage 3A to Stage 2B and 3 months for restaging from Stage 2B to Stage 1); |
| iii. | If a forborne exposure becomes non-performing during the 12-month probation/cure period, the probation/cure period starts again. |
| iv. | Restructuring agreements and its conditions should consider the following:
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| | ➢ | For the first time restructuring agreement with non-retail customers, 100% repayment of overdue interest and satisfactory compliance with the terms and conditions of the restructuring agreement.
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| v. | For the second time restructuring agreement with non-retail customers, at least 7% of the funded outstanding amount should be settled within the 12 months cure period; |
| vi. | The borrower's situation has improved (the borrower has resolved its financial difficulty) so that the full repayment of the exposure is likely, according to the original or modified terms and conditions; |
| vii. | The exposure is not in default as defined in Section 8 of these Rules or impaired according to the accounting framework - IFRS 9; and |
| viii. | The cure period requirements as stated above (12 months) do not apply to retail customers. For retail customers, cure period for moving stage 3 exposures into stage 1 exposures is 6 months (4 months for restaging from Stage 3A to Stage 2B and 2 months for restaging from Stage 2B to Stage 1).
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SAMA recognizes the added value of having discrete tiers of credit risk exposures within Stage 3 allocation. As a result, SAMA is establishing, for regulatory reporting purposes only and not for accounting purposes, a bifurcation of Stage 3 totals to be reported in the quarterly prudential returns.
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Stage 3A or Doubtful category within the stage 3 allocation. It represents borrowers with some or all of the following qualitative and quantitative indicators:
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Qualitative indicators include, but are not limited to:
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| i. | The borrower has a high risk of default or has defaulted; |
| ii. | A restructuring arrangement is in advanced stages of negotiation, expected to finalize before the loan is past due by more than 120 days. |
| iii. | Stage 3 loans which are in cure period.
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Quantitative indicator:
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| i. | Past due more than 90 days and up to 120 days.
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Stage 3B or Loss category within the stage 3 allocation. It represents borrowers with some or all of the following qualitative and quantitative indicators:
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Qualitative indicators include, but are not limited to:
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| i. | The borrower has defaulted; |
| ii. | The loan is uncollectible
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Quantitative indicator:
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| i. | Past due more than 90 days. |
| ii. | Stage 3A exposures past due more than 120 days
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