Article 49
Treatment of multiple defaults
For the treatment of obligors that default and recover several times in a limited period of time as defined by the institution (‘multiple defaults’), competent authorities shall assess the adequacy of the methods used by the institution and shall verify that:
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(a) |
explicit conditions are defined before a facility is considered to have returned to a non-default status; |
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(b) |
multiple defaults identified within a period of time specified by the institution are considered to be a single default for the purpose of LGD estimation, using the default date of the first observed default as the relevant default date and considering the recovery process from that date until the end of the recovery process after the last observed default in this period; |
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(c) |
the length of period within which multiple defaults are recognised as a single default is determined taking into account the institution’s internal policies and analysis of the default experience; |
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(d) |
defaults used for the purpose of PD and conversion factors estimation are treated consistently with defaults used for the purpose of LGD estimation. |