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Negative amount of the attribute “Accumulated changes in fair value due to credit risk”

Question

In the current version of Part II of the AnaCredit manual published on the ECB website, it is not clearly stated that this amount cannot be negative. On the contrary negative amounts for this attribute do not seem to be allowed under the transmission standards by national central banks. Can you please confirm that the amount of “accumulated changes in fair value due to credit risk” reportable to AnaCredit cannot be negative?

Answer

Contrary to the convention applied in FINREP (paragraph 69 in Annex V of the implementing technical standards), under AnaCredit a positive amount reported under the data attribute “accumulated changes in fair value due to credit risk” means that the accumulated net fair value of the instrument has decreased since the recognition of the instrument (cf. Section 5.4.8 in Part II of the AnaCredit Manual).

This means that, if the accumulated fair value of the instrument has deteriorated due to changes in creditworthiness since the recognition of the instrument (i.e. when the accumulated net change in fair value due to credit risk as calculated by adding all negative and positive changes in fair value due to credit risk that have occurred since recognition of the debt instrument is negative under the FINREP convention), a positive amount is reported for the data attribute under AnaCredit.

However, in relation to instruments whose creditworthiness has not worsened (i.e. when the accumulated net change in fair value due to credit risk as calculated by adding all negative and positive changes in fair value due to credit risk that have occurred since recognition of the debt instrument is positive under the FINREP convention) compared with the initial recognition, 0 (zero) is reported in this data attribute. This in particular means that, if the instrument’s creditworthiness has improved since initial recognition, the amount of 0 is reported under AnaCredit.

Consequently, while the addition of positive and negative changes in fair value due to credit risk can be negative (i.e. when the instrument’s creditworthiness has improved since initial recognition), the value reportable to AnaCredit is set by convention to zero in such cases and effectively the accumulated fair value changes are captured only if the instrument’s creditworthiness has deteriorated since initial recognition.

The above scheme is without prejudice to how this data attribute is specified by NCBs in a technical specification of the data transmission protocol at national level.