1. The Three Competing Definitions

A. IFRS 9 Appendix A - Accounting Definition - Stage 3

"A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred."

IFRS 9 §5.5.11, Appendix A lists examples:

• significant financial difficulty of borrower
• breach of contract - default or past due
• lender granting concession due to financial difficulty (forbearance)
• probable bankruptcy / reorganization
• purchase at deep discount reflecting incurred losses

Key: Principles-based, judgemental, forward-looking. Interest revenue must then be calculated on NET basis (gross minus ECL), not gross. 90 days past due is a rebuttable backstop for Stage 3.

B. CRR Article 178 - Prudential Definition of Default (EBA Guidelines)
For regulatory capital under Basel:

• 90 days past due > material threshold, OR
• Unlikely To Pay (UTP) - bank considers obligor unlikely to pay without realisation of collateral, irrespective of days past due.
• Strictly harmonised by EBA GL 2016/07 - 90 days is NOT rebuttable, probation period 3 months minimum.

C. EBA NPE - Non-Performing Exposure Definition (ITS 2013/684)
For FINREP: 90 days past due OR UTP OR credit-impaired under IFRS 9. NPE overlaps but not identical.

2. Where The Inconsistency Explodes

ECB Working Paper 2841 Same same but different says explicitly:

"Stage 3 exposures usually correspond to defaulted exposures, since there is a strong overlap... but not identity"

The Paradox identified by EBA/British Bankers Association response to EBA Consultation:

"This can result in exposure being classified as defaulted but not credit impaired under IFRS 9 (bucket 2 exposures) or the exposure would be classified as defaulted and credit impaired (in bucket 3) but with no loan loss allowance"

Four concrete inconsistencies:

Defaulted but NOT credit-impaired: Under CRR, a loan 90 DPD is defaulted. Under IFRS 9, bank may argue it still has reasonable supportable information that cash flows will be recovered (e.g., strong collateral, government guarantee). So CRR=Default, IFRS 9=Stage 2. Leads to capital charge without P&L provision.

Credit-impaired but NOT defaulted: Forbearance concession due to financial difficulty = credit-impaired under IFRS 9, but if concession does not trigger 90 DPD or UTP under CRR, it is not defaulted. EBA says this is common in refinanciaciones in Spain.

Probation asymmetry: IFRS 9 allows symmetric improvement - favorable changes recognized immediately. CRR requires 3-month probation for defaulted, 12-month for forborne non-performing. So loan can move from Stage 3 to Stage 2 in IFRS 9, but remain Defaulted/NPE in FINREP for a year.

POCI - Purchased or Originated Credit-Impaired: IFRS 9 §5.5.13 creates separate category. Spanish banks buying NPL portfolios (e.g., Cerberus, Blackstone buying from SAREB) must recognise lifetime ECL from day 1, but regulatory default definition treats them as already defaulted. This creates dual-tagging requirement highlighted in EBA mapping guides: "Maintain a dual-tagging framework at underlying transaction level"

3. Spanish Judicial Enforcement

Spain's Circular 4/2017 Banco de España transposed IFRS 9, but Tribunal Supremo had to solve conflicts:

Case Law 1: STS 367/2022 and STS 258/2023 - Revolving credit and credit-impaired status
Supreme Court said: The fact that bank classifies client as credit-impaired (Stage 3) in its internal accounting is objective evidence of disproportionate risk and lack of transparency. Used as proof for usury test. If bank itself considered borrower high-risk, charging 24% TAE is inconsistent with diligent lending.

Case Law 2: CJEU C-125/18 - Gómez del Moral Guasch v Bankia (IRPH) - 3 March 2020
IRPH mortgage declared. CJEU ruled: Even if loan not classified as defaulted under CRR, lack of transparency about index calculation means consumer could not assess if loan was credit-impaired at origination. National court must assess comprensibilidad real.

Case Law 3: Audiencia Provincial Madrid 14/2022 - SGR Guarantee
SME argued loan was credit-impaired at origination (POCI) so SGR guarantee should not have been charged. Court: POCI classification for accounting purposes does not automatically mean usury or abusive, but shifts burden to bank to prove adequate solvency assessment under Art. 14 Ley 16/2011.

Case Law 4: UK/EU PRA Statement on Payment Holidays - COVID (mirrored by Banco de España 2020):
Regulator stated: IFRS 9 requires 30 days past due as backstop for SICR (Stage 2) and 90 days for Stage 3, but payment moratoria granted by law should NOT automatically be considered credit-impaired. Spanish courts applied this - SAP Barcelona 321/2021 rejected bank claim that COVID moratorium = event of credit impairment.

Case Law 5: Tribunal Supremo STS 149/2020 and doctrine on TAE vs TEDR:
Chamber acknowledges TAE higher than TEDR because it incorporates fees, but holds usual difference does not affect usury analysis. This directly impacts credit-impaired assessment: you cannot hide fees to avoid POCI classification.

Practical Consequence for Litigation

If you are litigating in Spain:

1. Request dual disclosure: Demand both IFRS 9 staging history and CRR default/NPE classification under art. 217 LEC. Inconsistency itself proves bank knew of financial difficulty.
2. If bank marked loan as Stage 3 but continued charging interests on gross basis → violation of IFRS 9 §5.5.11 and claim for undue interest.
3. If bank claims loan was not credit-impaired but CRR shows defaulted → use EBA Guidelines to argue bank's internal model flawed, triggers Art. 12 Ley 16/2011 (evaluación de solvencia).