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Finance companies are required to adopt SAMA's regulatory definition of default and apply it consistently for both, regulatory and financial reporting purposes, or document good reasons why not. Finance companies should use both the quantitative and qualitative indicators of default that finance companies should use to determine the existence of a default. A default event occurs when either (or both) of the qualitative and quantitative criteria are met. Such indicators include, but are not limited to:
i.
A qualitative criterion - by which "the finance company considers that the obligor is unlikely to pay its credit obligations to the finance company in full, without recourse by the finance company to actions such as liquidating collateral (if secured)" ("unlikeliness to pay" events) including:
a.
The finance company allocates the credit exposure to Stage 3B status;
b.
The finance company makes a charge-off or account-specific provision resulting from credit impairment;
c.
The finance company sells the credit exposure at a material credit-related economic loss;
d.
The finance company consents to granting concessionary terms under a modified exposure agreement that would likely result in a diminished financial obligation caused by material forgiveness, or postponement, of principal, interest or fees;
e.
Bankruptcy protection has been filed for the borrower in respect of its credit obligation to the finance company;
f.
Finance company have taken borrowers to Enforcement Court; and
g.
The borrower has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the finance companies.
ii.
A quantitative criterion - where "the borrower is past due more than 90 days on any material credit obligation to the finance company and classified in Stage 3", equivalent to the rebuttable presumption in IFRS 9. In certain circumstances, finance companies may be able to justify the use of an objective indicator of default exceeding 90 days subject to priorapproval by SAMA on a case by case basis. However, finance companies would need to support using a -threshold exceeding 90 days with reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
A default event occurs when either (or both) of the qualitative and quantitative criteria are met.
