CFM INDOSUEZ Wealth Management - 2020 Annual Report

66 Restructuring due to financial difficulties Debt instruments restructureddue to financial difficulties are those for which CFM Indosuez Wealth Group has modified the initial financial conditions (interest rate, maturity) for economic or legal reasons related to the borrower ’s financial difficulties with new terms and conditions that would not have been considered in other circumstances. They concern all debt instruments, regardless of the category in which they are classified in respect of the increase in credit risk since initial recognition. In accordance with the definition given by the European Banking Authority (EBA), provided in the chapter on “Risk factors” in the Crédit Agricole SA Universal Registration Document, loan restructuring corresponds to all changes made to one or more credit agreements and refinancing granted due to financial difficulties experienced by the client. This notion of restructuring must be assessed at the level of the contract and not at the client level (no contagion). The definition of loans restructured due to financial difficulties therefore meets two cumulative criteria: • Contract amendments or debt refinancing; • A client in a difficult financial situation. The term “contract amendment” refers to situations in which: • There is a difference in the borrower’s favour between the amended contract and the previous conditions; • The changes to the contract grant the borrower concerned more favourable terms than other borrowers with a similar risk profile would have been able to obtain from the bank at the same time. “Refinancing” refers to situations in which a new loan is granted to the client to enable him to partially or fully repay another debt for which he cannot meet the contractual conditions due to his financial situation. The restructuring of a loan (performing or in default) assumes that there is a known risk of loss (Bucket 3). It is therefore necessary to analyse whether impairment needs to be recognised on the restructured loan (restructuringdoesnot systematically result in impairment or classification as being in default). The classification as a “restructured loan” is temporary. As of the restructuring operation, the exposure will maintain this “restructured” status for a period of at least two years if it was deemed to be performing at the time of restructuring or three years if the exposure was in default at the time of restructuring. These periods are extended in the case of certain events, provided for by the Group's standards (new incidents, for example). As restructured loans arenot derecognised, the reduction in future cash flows due from the counterparty or the deferral of these flows over a longer period as part of the restructuring results in the recording of a discount in the cost of risk. If part of the principal is written off, this amount is a loss to be recorded directly in cost of risk. The discount recognised when a debt is restructured is included in the cost of risk. When the discount is reversed, the portion arising from theeffect of thepassageof time is recorded innet banking income. Irrecoverable loans When a receivable is deemed to be irrecoverable, that is to say that there is more hope of recovering all or part of it, it is derecognised on the balance sheet and the amount deemed irrecoverable is written off as a loss. The assessment of the period after which it is recorded as a loss is based on an expert judgement. Each entity must therefore establish this period based on its activity. Before any loss is recorded, a provision should have been recorded in Bucket 3 (with the exception of assets measured at fair value through profit or loss). For loans recognised at amortised cost or at fair value through other comprehensive income recyclable to income, the principal amount written off is recorded in cost of risk, while interest is recorded in net banking income. Derivative financial instruments Classification and measurement Derivatives are financial assets or financial liabilities classified by default as derivatives held for trading unless they can be classified as hedging derivatives. They are recorded on the balance sheet for their initial fair valueat the tradingdate. They aresubsequently valued at fair value. At each reporting date, changes in the fair value of derivatives in the balance sheet are recorded: • In income, for derivatives held for trading or fair value hedges; • In equity, for cash flow hedges or net investments in foreign operations, for the effective portion of the hedge.