Sale of non-performing loans to a third party
In Example 13 in Section 4.4.3 of Part II of the AnaCredit Manual, the outstanding nominal amount is reported including accumulated write-offs, even though, according to the definition of outstanding nominal amounts, written-off amounts should be deducted (see Section 4.4.9, page 85, lines 24-25). Should it not be €15,000, rather than €100,000? We assume that the reporting of €100,000 is related to the reporting of €100,000 for the “transferred amount” attribute, but would it not make more sense to report €15,000 for both of these attributes, as the buyer only pays €15,000?
Another feature of this example is the fact that the “transferred amount” attribute is reported up until the end of the quarter and the counterparty-instrument dataset is updated after the sale, even though the loan is not serviced by the seller after the sale. This is not consistent with Section 22.214.171.124, which states that only the attributes “outstanding nominal amount”, “cumulative recoveries since default” and “accumulated write-offs” are reported for loans that are no longer held or serviced.
Please note that Example 13 in Part II of the AnaCredit Manual does not correctly reflect the treatment of written-off instruments. The explanations provided in Section 3.1.6 of Part II of the AnaCredit Manual, together with the clarifications provided with regard to Questions 2 and 3 of the Q&A, should take precedence in this regard.
Consequently, the after-sale reporting in Example 13 is revised as follows:
- The instrument is neither held nor serviced by Bank B after the sale, so extended quarter-end reporting applies.
- Thus, the only datasets that are reported are the financial dataset and the accounting dataset (see Section 126.96.36.199 of Part II of the Manual and the Q&A here).
- The financial dataset is reported on 31 October, 30 November and 31 December, whereby:
- in the extended reporting period, the outstanding nominal amount is, by convention, €0 after the sale (as the instrument is non‑existent from Bank B’s perspective);
- by convention, the transferred amount is “non-applicable”;
- the financial dataset is not reported thereafter.
- The accounting dataset is reported on 31 December only, whereby:
- accumulated write-offs total €85,000;
- cumulative recoveries since default should be at least €15,000.
- The counterparty-instrument dataset is not reported at all after the sale (see Section 188.8.131.52 of the Manual and the Q&A here), and neither are the remaining datasets.
In addition, please note that the outstanding nominal amount should indeed be reported net of write-offs. However, in this case, this is of lesser relevance, as the outstanding nominal amount is €0 by convention. This seeks to reflect the fact that the instrument is no longer in Bank B’s systems. Also by convention, the transferred amount is reported as “non-applicable”, rather than €0, in line with Part II, page 68, lines 21-22. So, the updated Example 13 is as follows:
Revised Example 13: Sale of a non-performing loan to a third party (servicing stops)
Credit institution Bank#B extends a non-performing loan Ins#3 to debtor Deb#3 on the basis of contract Con#7. On 15 October Bank#B entirely sells off the loan to a third party buyer (BUYER#T) for a fraction (i.e. 15%) of its nominal amount, and at the same time Bank#B writes off the remaining part of the loan. Bank#B ceases to act as servicer of the loan after the sale.
From the perspective of Bank#B as an observed agent, the reporting before the sale is analogous to the case illustrated in Example 10 above and is not shown here. After the sale, Bank#B acts as neither creditor nor servicer of Ins#3, but, owing to the fact that a write-off occurs, Bank#B reports Ins#3 until the end of the quarter (i.e. until 31 December 2018). Please note that the obligation to report Ins#3 after the sale exists irrespective of whether or not the buyer is a credit institution and is triggered by the instrument being subject to a write-off. The reporting of the outstanding nominal amount, the transferred amount and the accumulated write-offs in the extended period are presented in Table 40 and Table 42.
Table 40 Indication of the financial dataset after the sale
Please note that at the moment of sale, BUYER#T acquires the ownership of the instrument and assumes the roles of creditor and servicer while Bank#B ceases to act as creditor. Consequently, as the instrument is considered non-existent from the seller’s perspective and in accordance with Section 184.108.40.206 (and Q&A#3) the counterparty-instrument dataset is not reported after the sale.
Table 42 Indication of the accounting dataset after the sale
Please note that accumulated write-offs, which are part of the accounting dataset, are reported only as of quarter-ends. Therefore, the information that €85,000 has been written off is reported to AnaCredit only as of 31 December 2018, as no reporting of the accounting dataset takes place for October and November. The cumulated recoveries since default are reported as of 31 December 2018 and amount to €15,000 (unless additional recoveries were obtained before the sale of the instrument on 15 October 2018.
Please note that if Bank#B continued to service the instrument after the sale, then Bank#B would report the instrument beyond 2018, if BUYER#T was not a credit institution.