Rules Governing Credit Risk Exposure Classification and Provisioning

Forbearance 7.1.1 Identification of Forbearance Forbearance includes all exposures regardless of the measurement method for accounting purposes. Forbearance occurs when: i. The borrower is experiencing financial difficulty in meeting the financial commitments specified under the initial credit contract; and ii. The finance company grants a concession that it would not otherwise consider whether or not the concession is at the discretion of the finance company and/or the counterparty. A concession is at the discretion of the borrower when the initial contract allows the borrower to change the terms and conditions of the contract in its own favor due to financial difficulty. Forbearance is identified at the individual exposure level to which concessions are granted due to financial difficulty of the counterparty. For regulatory classification purposes, these exposures should only be reported in Stage 2B, 3A or 3B. 7.1.2 Identification of Financial Difficulty Finance companies should first determine if the borrower is experiencing financial difficulty at the time when the forbearance is granted. The following list provides examples of possible indicators of financial difficulty, but is not intended to constitute an exhaustive list of financial difficulty indicators with respect to forbearance. i. A borrower is currently past due on any of its material exposures (more than 5% of total exposures); ii. A borrower is not currently past due, but it is probable that the counterparty will be past due on any of its material exposures (more than 5% of total exposures) in the foreseeable future without the concession, for instance, when there has been a pattern of delinquency in payments on its material exposures; iii. A borrower's outstanding securities have been delisted, are in the process of being delisted, or are under threat of being delisted from an exchange due to noncompliance with the listing requirements or for financial reasons; iv. The borrower is unwilling to pay; v. The finance company forecasts that all the borrower's committed/available cash flows will be insufficient to service all of its exposures or debt based on actual performance, estimates and projections that encompass the borrower's current capabilities; vi. A borrower's existing exposures are categorized as exposures that have already evidenced difficulty in the counterpart's ability to repay in accordance with the SAMA categorization scheme in force or the credit categorization scheme within a finance company's internal credit rating system; vii. A borrower is in non-performing status or would be categorized as non- performing without the concessions; viii. The borrower cannot obtain funds from sources other than the existing finance companies at an effective interest rate equal to the current market interest rate for similar exposures or debt securities for a nontroubled counterparty; ix. Customer is unable to provide promised security/collateral (while the exposure is disbursed) past 180 days and is deemed material to credit; and x. For retail customers, the potential incidents would be customers with job loss, retirement with no income, reduced salary, discontinued salary transfers etc.