77 initial recognition, it is necessary to take the internal rating and PD (probability of default) at origination. The date of initial recognition refers to the trading date, when CFM IndosuezWealth becomes a party to the financial instrument’s contractual provisions. For financing and guarantee commitments, origination means the date on which the irrevocable commitment was made. In the absence of an internal rating model, Groupe Crédit Agricole uses the absolute threshold of non-payment for over thirty days as the ultimate threshold for significant deterioration and classification in Stage 2. For outstanding amounts (with the exception of securities) covered by internal rating systems (in particular exposures monitored by authorised methods), CFM Indosuez Wealth Group considers that all the information included in the rating systems allows for amore relevant assessment than the sole criterion of amounts past due for more than 30 days. If the material deterioration in credit risk since initial recognition is no longer observed, the asset can be reclassified to 12-month expected credit losses (Stage 1). Tomake up for the fact that certain significant deterioration factors or indicators may not be identifiable at financial instrument level, taken in isolation, the standard allows for the assessment of significant deterioration in regard to portfolios, groups of portfolios, or parts of portfolios of financial instruments. Portfolios for a collective deterioration assessment may share common characteristics such as: • the type of instrument; • the credit risk rating (including the Basel II internal rating for entities with an internal rating system); • the type of guarantee; • the date of initial recognition; • the remaining time to maturity; • the business sector; • the geographic location of the borrower; • the value of the asset securing the financial asset, if this affects the probability of default (for example, in the case of loans secured only by collateral in certain countries, or the loan-to-value ratio); • the distribution channel, the purpose of the loan, etc. Significant deterioration can therefore be differentiated per market (housing, consumer credit, credit for farmers or professionals, credit for businesses, ...). Combinations of financial instruments created for assessing changes in collective credit risks can bemodified over time as new information becomes available. For securities, CFM Indosuez Wealth Group applies an absolute level of credit risk, in accordancewith IFRS 9, below which exposures are classified in Stage 1 and depreciated on the basis of 12-month ECL. Thus, the following rules apply for monitoring a material deterioration in securities: • securities rated Investment Grade as of the reporting date will be classified in Stage 1 and provisioned on the basis of 12-month ECL; • securities ratedNon-Investment Grade as of the reporting date will need to be monitored for any significant deterioration in credit risk since initial recognition and be classified in Stage 2 (lifetime ECL) in the event of a material increase in credit risk. The relativedeteriorationmust beassessedbefore thedefault occurs (Stage 3). Restructuring due to financial difficulties Debt instruments restructured due to financial difficulties are those for whichCFM IndosuezWealthGroup hasmodified 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 inother circumstances. As such, these concern any debt instruments, regardless of the security's category in respect of credit risk deterioration observed since initial recognition. InaccordancewiththedefinitiongivenbytheEuropeanBanking Authority (EBA), provided in thechapter on “Risk factors” in the Crédit Agricole SA Universal Registration Document, loan restructuringcorresponds toall changesmade tooneormore credit agreements and refinancing granted due to financial difficulties experienced by the customer. This concept of restructuringmust beassessedat agreement level and not at customer level (no contagion). The definition of loans restructured due to financial difficulties therefore meets two cumulative criteria: • Contract amendments or debt refinancing (concessions); • A customer in a difficult financial situation (debtor experiencing, or about to experience, difficulties in meeting financial commitments). 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; • Thechanges to thecontract grant theborrower concerned more favourable terms thanother borrowerswitha similar risk profilewould have been able to obtain from the bank at the same time. “Refinancing” covers situations inwhich a newdebt is granted to the customer to enable themto repay all or part of another debt for which they cannot meet the contractual terms and conditions owing to their financial position. The restructuring of a loan (performing or in default) assumes that there is a known risk of loss (Stage 3). The need to recognise impairment on the restructured exposure must therefore be analysed accordingly (restructuringdoes not automatically result in the recognition of impairment for proven losses or classification as default). The “restructured loan” classification is temporary. Once the restructuring operation, as defined by the EBA, has been completed, exposure retains this “restructured” status for aminimumperiod of 2 years, if the exposure was healthy at the time of restructuring, or a minimum period of 3 years if the exposure was in default at the time of restructuring. These periods are extended if certain events occur, (e.g. further incidents).
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