71 - a second level based on an expert appraisal, taking in account local forward looking data, of the risk incurred by each entity on its portfolios – this appraisal may lead to an adjustment of the Group’s criteria for reclassifying exposures into Stage 2 (transfer of portfolio or sub-portfolio to lifetime ECL). Each financial instrument is monitored for significant deterioration, save for exceptional cases. No contagion is required for financial instruments from the same counterparty to be transferred from Stage 1 to Stage 2. Monitoring of significant deterioration must consider the change in the principal debtor’s credit risk without taking account of any guarantee, including for transactions with a shareholder guarantee. Projected losses in respect of amounts outstanding that consist of small debts with similar characteristics may be estimated on a statistical basis rather than on an individual counterparty basis. To measure the significant deterioration in credit risk since 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 Indosuez Wealth 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 nonpayment 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), Crédit Agricole Group considers that all the information included in the rating systems allows for a more relevant assessment than the sole criterion of amounts past due for more than 30 days. If the deterioration since initial recognition ceases to exist, the outstandings are reclassified as Stage 1 (sound outstandings), and the impairment is reduced to losses expected over 12 months. To make 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. The establishment of portfolios for an assessment of collective impairment can be based on 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 sector of activity; - 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-tovalue 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 be modified over time as new information becomes available. For securities, CFM Indosuez Wealth applies an absolute level of credit risk, in accordance with 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; - “Non-Investment Grade” securities (NIG), at the reporting date, must be monitored for significant deterioration since origination and be classified in Stage 2 (lifetime ECL) if there is a significant deterioration in credit risk. The relative deterioration must be assessed before the default occurs (Stage 3). Restructuring due to financial difficulties Debt instruments restructured due to financial difficulties are those for which CFM Indosuez Wealth has modified the initial financial conditions (interest rate, maturity, etc.) 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 therefore apply to all debt instruments, regardless of the debt instrument's classification category based on the deterioration in credit risk observed since initial recognition. In accordance with the definition of the EBA (European Banking Authority) set out in the "Risk Factors" section of Crédit Agricole S.A.'s Universal Registration Document, debt restructuring due to the debtor's financial difficulties corresponds to all amendments made to one or more credit agreements in this respect, as well as refinancing granted due to the financial difficulties encountered by the customer. This concept of restructuring must be assessed at 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). “Refinancing” refers to situations in which a new loan is granted to the client to enable him to partially or
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