Circular Letter No. CC/2020/00000038

Circular Letter No. CC/2020/00000038 Sent to: Credit Institutions. Mod. 40000375/T – 01/14 Subject: EBA Guidelines on the estimation of probability of default (PD), the estimation of loss given default (LGD) and the treatment of exposures in default (EBA/GL/2017/16) The European Banking Authority (EBA) published, on April 23, 2018, the “Guidelines on the estimation of probability of default (PD), the estimation of loss given default (LGD) and the treatment of exposures in default (EBA/GL/2017/16)”, which will enter into force on January 1, 2022 (1). These Guidelines can be consulted on the EBA’s respective website (2). The aforementioned document contains guidelines for the estimation of probability of default (PD), the estimation of loss given default (LGD) and the treatment of exposures in default and apply in relation to the IRB method in accordance with Part III, Title II, Chapter 3, of Regulation (EU) No 575/2013, for all methods based on own estimates of PD and LGD. Credit institutions supervised by the Bank of Portugal that apply the IRB method in accordance with Part III, Title II, Chapter 3, of Regulation (EU) No 575/2013 must, from now on, adopt the necessary measures to comply with the aforementioned Guidelines from January 1, 2022. The Bank of Portugal emphasizes the importance of institutions giving adequate compliance with the guidelines contained in the document in question, which must be followed and applied in the context of current legislation and regulation and, in particular, function as a complement to the provisions contained in the General Regime of Credit Institutions and Financial Companies regarding the matters in question. (1) In the original text, these Guidelines had an effective date of January 1, 2021. However, according to the PROGRESS REPORT ON THE IRB ROADMAP, published by the EBA on July 9, 2019, the effective date was delayed by one year, i.e., until January 1, 2022. (2) https://eba.europa.eu/documents/10180/2192133/Guidelines+on+PD+and+LGD+estimation+%28EBA-GL-2017-16%29_PT.pdf/d9827a79-ec82-41e0-8bde-631889a3ef32