Rules Governing Credit Risk Exposure Classification and Provisioning

Renegotiated and/or Refinanced and/or Rescheduled Exposures Renegotiated and/or Refinanced and/or Rescheduled exposures represent a change in exposure terms, conditions, and/or timing of repayment performed for the convenience of the borrower, where no financial deterioration coexists with the transaction now or in the foreseeable future. For example, a borrower may seek to change repayment terms from monthly to quarterly due to changes in the timing of incoming payment streams but not due to any deterioration in overall cash flows. Transactions within this definition must not lead to a reduction in the present value of the exposure. The borrower must not be in financial difficulty during the renegotiation. Otherwise, the transaction would qualify as forbearance instead of renegotiation. It is expected that finance companies will maintain exposure documentation that demonstrate that the financial repayment capacity and credit risk of the borrower has not changed and that the act of renegotiation is not consistent with the forbearance Rules specified in Section 7.1 . The mere act of renegotiation does not qualify for a downgrade in the stage allocation of renegotiated exposures. Instead, the staging allocation of renegotiated exposure follows the rules outlined in Section 3 . For Retail exposures, renegotiation should only be permitted for personal finance and for residential exposures on an exceptional basis. This renegotiation should only be maximum once in a year and 3 times in the lifecycle of the exposure. If this renegotiation exceeds 3 times, that should be considered as forbearance. 8. Default 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 cri