## 2.10 Valuation and recognition of loans

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### Introduction — valuation principles and scope of ambiguity
- Core valuation principles:
  - 2025 SNA and BPM7 reaffirm recording loans at nominal value in core presentations; supplementary information can be disclosed in memorandum items (2025 SNA, paragraphs 14.73 and 14.78).
  - The nominal recording rule applies to non-performing loans until restructuring or write-off (2025 SNA, paragraph 14.77).
- Concessional lending:
  - Defined as loans attracting an interest rate below the market rate; additional characteristics may include grace periods, repayment terms and maturity favorable to the debtor (2025 SNA, paragraph 14.112).
  - Recorded at nominal value; GFSM 2014 prescribes disclosing the economic value and implicit transfer as memorandum items.
- Transactions legally structured as lending but lacking fundamental economic characteristics:
  - GFSM 2014 and 2025 SNA permit partitioning for capital injections on nonmarket terms (2025 SNA, paragraph 30.168), but guidance is not explicit for collective standardized nonmarket loan schemes (e.g., student loans, SME schemes) where aggregate economic claim value may be significantly lower than cash outlay at inception.
- Loan value deterioration:
  - 2025 SNA broadened circumstances for reassessment of nominal loan value (2025 SNA, paragraph A4.82); references “re-assessments in cases there is evidence of loan deterioration due to publicly known events (e.g., in the context of bank recovery operations)” (2025 SNA, paragraph 14.73).
  - BPM7 clarifies loan value resets can apply “even beyond the cases of bankruptcy and liquidation, or court decisions” (BPM7, paragraph 7.49).
  - Neither manual treats mere expected credit loss (ECL) on a creditor’s balance sheet as sufficient for resetting loan value; sufficient factors remain less clear (BPM7, paragraph 7.59).

### Four areas needing clarification
- Treatment of individual loans provided on a non-market basis where the effective financial claim value is, from inception, significantly lower than the payment made.
- Treatment of collective loan schemes provided on a non-market basis where aggregate effective claim value is, from inception, significantly lower than payment outlay.
- Treatment of loans recorded at full nominal value at inception where evidence of claim value deterioration emerges.
- Presentation of concessional loans in fiscal statistics (loans expected to be repaid in full but attracting an interest rate below the market rate or having further favorable characteristics).
- GFSM Update Research Project 2.15 covers individual capital injections; this note focuses on the latter three areas.

### Issue A — Treatment of collective loan schemes provided on a nonmarket basis
- Background findings:
  - The distinction between loans (expected to be repaid) and transfers (not expected to be repaid) weakens when loan products are not expected to be repaid fully and lack compensatory mechanisms (collateral, risk-reflective interest rates).
  - Examples of products with prior expectation of non-repayments:
    - Income-contingent loans where outstanding balance may be automatically cancelled after a predefined period.
    - Small business loans by public lenders targeting entities unable to access market credit, often uncollateralized and below-market interest rates.
    - Loans after natural disasters or public health emergencies under lenient eligibility criteria, below-market interest rates and without collateral.
    - Certain export loans by public agencies under lenient eligibility or below-market interest rates without export credit guarantees.
  - Such schemes can attract high non-repayment rates by design, in some cases exceeding half of the nominal value of the loan outlay.
  - 2025 SNA, BPM7 and GFSM 2014 do not explicitly address collective nonmarket loan products; uncertainty exists whether to apply headline nominal valuation or capital injection partitioning.
- Options identified:
  - Option A1: Provide no additional guidance (status quo).
  - Option A2: Include guidance clarifying circumstances in which partitioning of collective loan schemes is appropriate; extend GFSM 2014 and 2025 SNA paragraph 30.168 principles to collective nonmarket loan products; require operational criteria for partitioning; use forward-looking accounting indicators (ECL from IFRS 9 / IPSAS 41) and public policy statements as evidence.
- Draft recommendations:
  - Include new guidance on treatment of collective loan schemes provided on a non-market basis to increase clarity and consistency.
  - Key considerations:
    - Apply partitioning where there is a prior expectation that aggregate financial claim value will be materially lower than nominal loan outlay; treat implicit transfer as a transfer component consistent with 2025 SNA paragraph 30.168.
    - Establish clear operational criteria to distinguish schemes with intended high non-repayment rates from conventional lending that later performs poorly.
    - Use forward-looking accounting indicators (ECL from IFRS 9 / IPSAS 41 or equivalent disclosures) and public policy statements as evidence where available.
    - Ensure guidance supports practical implementation from creditor and debtor perspectives, including in lower-capacity settings.

### Issue B — Treatment of loans recorded at nominal value when evidence of deterioration emerges (loan “value resets”)
- Background and ambiguity:
  - Term “value reset” originates from FITT note F.9 and MGDD 2022; not formally defined in 2025 SNA.
  - 2025 SNA paragraph 30.145 prescribes a binary option in bailouts: either record loans purchased by government at full nominal value or at zero value (with zero implying the entire government assistance recorded as a capital transfer).
  - 2025 SNA enumerates three categories that may lead to reassessment of original loan values: debt restructuring; bankruptcy and liquidation; evidence of loan deterioration due to publicly known events.
- Key tensions and inconsistencies:
  - 2025 SNA allows partial reduction in loan value according to expected recoverable amount in some places but elsewhere offers binary treatment for bailouts; GFSM 2014 text and figure suggest partial reduction is appropriate, creating interpretive inconsistency.
  - Ambiguity persists on:
    - The precise meaning of “publicly known events.”
    - Whether value resets correspond to transactions, other changes in volume of assets, or both.
    - Whether mere non-performance or creditor ECL provisions are sufficient for resetting loan value (BPM7 indicates they are not).
- Interpretive guidance propositions:
  - Any “loan value resets” must reflect economic reality from debtor’s and creditor’s positions (2025 SNA para. 13.45).
  - Events that could qualify beyond bank recovery operations include:
    - New legislation (or similar lawful act) overriding original contractual terms.
    - Activation of contingency elements embedded in the loan agreement (where contingency did not warrant partitioning at inception), including contractual reduction in claim value upon a specific economic event.
  - Classification in flow accounts should depend on the economic nature of the underlying event:
    - Record a transaction (capital grant or transfer) when there is an explicit or implicit intention to convey a benefit to the debtor, even without formal mutual agreement or debtor involvement.
    - Record an other change in the volume of assets if the reduction is a unilateral act without such intention.
  - Special case — pre-bailout loans:
    - Pre-existing loans continuing in original contractual form despite government support would remain recognized at nominal value by default because no technical debt restructuring occurred.
    - To prevent a loophole allowing governments to continue recording loan assets whose economic value effectively deteriorated to zero, extend capital injection and bailout guidance to pre-existing loans where strong evidence exists that the debtor would have faced insolvency absent government intervention.
  - Where significant uncertainty remains around pre-bailout loan values, nominal valuation should remain the default.
  - Fiscal statistics exception: where no effective write-off or restructuring policy exists (legal or practical prohibitions on write-offs, creditor’s failure to recover amounts over a multi-year period, or bad debt provisions approaching outstanding nominal balance), an exception to the general nonperforming loans rule could be warranted and loan value resets considered.
- Options identified:
  - Option B1: Provide no clarification of “loan deterioration due to publicly known events”.
  - Option B2: Provide examples of qualifying events (beyond restructuring) without defining a precise statistical concept; prefer interpretive guidance and examples given heterogeneity.
- Draft recommendations (summary):
  - Recommend Option B2: Mirror 2025 SNA and BPM7 guidance on loan “value resets” for loans recorded at nominal value at inception with further clarifications:
    - Provide specific examples of qualifying events beyond restructuring (e.g., new legislation overriding contractual terms; activation of contingency clauses).
    - Clarify that reset treatment depends on whether the event implies an intention to convey benefit to the debtor (transaction/capital transfer) or is a unilateral valuation adjustment by the creditor (other change in the volume of assets).
    - Extend capital injection and bailout guidance to pre-existing loans where government interventions materially change recoverability, while retaining nominal valuation as default where uncertainty remains.
    - Allow an exception to nominal valuation where clear evidence demonstrates no effective write-off or restructuring policy exists and recoverability is effectively nil.
  - Recommendation to review GFSM 2014 paragraph A3.52 to avoid inconsistencies with updated guidance.

### Issue C — Presentation of concessional loans
- Background:
  - Concessional loans are recorded at full nominal value; concessionality elements are disclosed through memorandum items in GFSM 2014.
  - The Notice of Decision maintained GFSM 2014 treatment; that decision is not revisited.
- Options identified:
  - Option C1: Maintain GFSM 2014-style recording of concessional loans (and associated implicit transfer) as memorandum items.
  - Option C2: Supplement GFSM taxonomy by including “of which” subcategories under Loans (GFSM 2014 code 6204).
    - Example breakdown:
      - 6204 Loans (at nominal value)
        - 62041 Loans provided on market terms (at contractual nominal value)
        - 62042 Concessional loans (at contractual nominal value)
    - Concessional loans remain at nominal value; implicit transfers remain memorandum items.
  - Option C3: Include a supplementary balance sheet statement where assets are recorded at “market” value, approximated by fair value where no observable market price exists.
- Assessment of options:
  - Option C1:
    - Memorandum item reporting reduces the likelihood of data being compiled and disseminated.
    - GFSM 2014 memorandum items include:
      - Outstanding nominal value of loans issued on concessional terms (GFSM 2014 code 6M391).
      - Value of the implicit “transfers” (GFSM 2014 code 6M392), defined as the difference between nominal value and its present value using a relevant market discount rate.
    - Memorandum items are conceptually consistent with 2025 SNA (paragraph 14.113) but often not compiled.
  - Option C2:
    - “Of which” breakdown keeps concessional loans at nominal value; requires memorandum items to disclose implicit transfer for analytical clarity.
    - May be limited to loan assets; symmetric reporting of government loan liabilities at discounted proxy-“market” values is debatable.
    - Adjusted (proxy-“market”) nominal values remain in memorandum items, potentially hidden within fiscal aggregates.
  - Option C3:
    - Supplementary balance sheet would report adjusted (proxy-“market”) values in practice fair values; no new taxonomy required.
    - Alternative values imply alternative flow values (implicit transfers at initial recognition and subsequent revaluations); no supplementary flow statements proposed for proportionality.
    - Would align with a “market value” notion but break alignment with 2025 SNA, BPM7, and GFS flow statements; risks confusion on meaning of balance sheet aggregates.
- Draft recommendations and rationale:
  - Recommend Option C1: Maintain consistency with GFSM 2014 approach to disclosing economic value of concessional loans and associated implicit transfer as memorandum items.
  - Rationale:
    - Implementation and maintenance costs of alternative presentations are disproportionate to analytical benefits.
    - “Of which” breakdown offers few advantages without memorandum items disclosing implicit transfers (6M392).
    - Supplementary balance sheet duplicates the original balance sheet and introduces broader changes to loan presentation beyond intent.
    - Risks of confusion and misalignment with 2025 SNA and BPM7 concepts such as net financial worth.
  - Additional recommendation: Introduce a new decision tree to summarise scenarios associated with lending and their statistical treatment; draft decision tree to be prepared once decisions are reached on this discussion note and GFSM Update Research Project 2.15.

### Relationship with Eurostat guidance
- Many conclusions are substantively consistent with Eurostat’s MGDD 2022.
  - MGDD 2022 primary concept: loans where at inception a significant proportion of outlay is not expected to be repaid should be partitioned into capital transfer and genuine lending elements.
  - MGDD 2022 chapter 4.5 encourages recording loan assets at their “reset” nominal value (equal to the transaction value) in financial institutions’ bailouts.
- Caution advised in wholesale adoption of MGDD 2022 drafting because some chapters predate IFRS 9 and IPSAS 41 or respond to specific local problems.
- Income-contingent loans:
  - Distinction between income-contingent and other contingent loans may be redundant for GFSM purposes; key characteristic is that economic claim value may, from inception, be significantly lower than cash outlay.
  - Contingent loans with no significant transfer element but only concessionality (e.g., contingent interest rate where loans must still be repaid in full) should be treated as other concessional loans and recorded at nominal value.
  - Methodology to partition contingent loans is substantively similar to partitioning non-contingent loans.
  - Recommendation: refer to income-contingent loans as an example rather than a unique loan type requiring distinct statistical rules.

### ANNEX 2 — Practical considerations pertaining to loan partitioning
- Conceptual overview:
  - Direct use of accounting fair value adjustments to inform loan partitioning is not fully compatible with loan valuation in 2025 SNA and BPM7.
  - 2025 SNA and GFSM 2014 recommend partitioning loans into an expenditure component and a genuine financial transaction component under certain conditions; this does not translate into direct use of fair values.
  - Compilers may not be better placed than public entity accountants to estimate transfer component; compilation issue is avoiding implicit inclusion of non-relevant fair value factors.
- Components of fair value adjustments (full scope):
  - Credit risk (ECL)
  - Market interest rate adjustments
  - Liquidity discount
  - Embedded options
  - Day one gains and losses
  - Counterparty-specific factors
- Relevance for statistical partitioning:
  - Relevant components: Credit risk (ECL) and counterparty-specific factors.
  - Discard for statistical partitioning: Market interest rate adjustments; liquidity discount; embedded options; day one gains and losses.
  - Rationale: Market interest rate adjustment reduces fair value of loans priced below market yields, contradicting statistical approach to recording concessional loans at nominal value and should be discarded (GFSM 2014, paragraph 7.246).
- Practical approaches and trade-offs:
  - For large schemes, responsible public entities may run accounting models isolating only credit risk and counterparty-specific factors for statistical purposes, reducing nominal outlay by amounts unlikely to be repaid but making no further valuation adjustments.
    - Benefit: maintains conceptual consistency with 2025 SNA, BPM7 and GFSM guidance.
    - Drawbacks: additional burden on data suppliers; resulting estimates close to fair value yet different, creating user confusion; adjustments are intertwined so component independence is limited.
  - Fair value may be a reasonable proxy where expected non-repayments are large.
    - It is not uncommon for the loan schemes discussed to attract "25 to 50 percent" non-repayment rates.
    - When expected non-repayments are large, ECL is likely to dominate fair value adjustments, so fair value under IFRS 9 and IPSAS 41 may be a suitable practical proxy for a partitioned nominal value in statistics.
    - Applicability varies across schemes and jurisdictions and requires case-by-case assessment.
    - Caveat: high expected non-repayments may accompany concessional interest rates; the concessional interest rate leads to significant downward fair value adjustments that should be absent from the statistical valuation.
- Implementation guidance for statistical compilers:
  - Avoid implicit inclusion of market interest rate and liquidity adjustments, embedded options, and other non-credit factors when partitioning loans for statistical purposes.
  - Where feasible and material, seek accounting information that disaggregates fair value adjustments (for example, showing the ECL component separately); recognize public financial institutions are more likely to have such disaggregated information and that adjustments remain intertwined.
  - Apply case-by-case assessments to determine whether fair value is an acceptable proxy, focusing on:
    - The size of expected non-repayment rates.
    - The presence of concessional interest rates or features producing non-credit-related fair value adjustments.

*Source: GFSM 2014 Update Consultation: May 2026 — Discussion Note 2.10 Valuation and recognition of loans*

### 2.10 Valuation and recognition of loans

### 2.10 Valuation and recognition of loans

### Summary details and key recommendations
- Task Team Responsible: Debt and Other Monetary and Financial Topics Task Team (TT2).
- Authors: Eduard Moskalenko, Francesco Vercelli.
- Principal summary of issues:
  - The Government Finance Statistics Manual would benefit from clarification on recognition and valuation of transactions legally structured as lending but not resulting in a symmetric exchange of economic benefits (effective financial claim with a lower economic value than the payment provided by the creditor).
  - Guidance is also ambiguous on treatment of loans initially recorded at full nominal value when evidence of claim value deterioration emerges.
- Draft recommendations:
  1. Maintain consistency with the general SNA and BPM principles of recording loans at nominal value, including for non-performing and concessional loans.
  2. Clarify circumstances in which partitioning of collective (standardized) instruments legally structured as lending but lacking many of its defining economic characteristics could be warranted at initial recognition, consistently with the GFSM 2014 approach to capital injections.
  3. Mirror the 2025 SNA and BPM7 guidance on loan “value resets” for loans recorded at nominal value at inception with further clarification on the nature of the exceptional qualifying events.
  4. Maintain consistency with the GFSM 2014 approach to disclosing the economic value of concessional loans and the associated implicit transfer as memorandum items.
  5. Introduce a new decision tree to summarise scenarios associated with lending and their statistical treatment.

### Introduction — valuation principles and scope of ambiguity
- 2025 SNA and BPM7 reaffirm recording loans at nominal value in core presentations while disclosing supplementary information in memorandum items (2025 SNA, paragraphs 14.73 and 14.78).
- The general nominal recording rule applies to non-performing loans until restructuring or write-off (2025 SNA, paragraph 14.77).
- Concessional lending:
  - Understood as loans attracting an interest rate below the market rate; additional characteristics may include grace periods, repayment terms and maturity favorable to the debtor (2025 SNA, paragraph 14.112).
  - Recorded similarly to lending on market terms; the approach can overstate the economic value of concessional loan assets to the creditor, typically an international organization or public sector entity.
  - GFSM 2014 approach: disclose economic value and implicit transfer as memorandum items.
- Transactions legally structured as lending but lacking fundamental economic characteristics:
  - 2025 SNA and GFSM 2014 prescribe departure from unadjusted nominal valuation for capital injections on nonmarket terms (2025 SNA, paragraph 30.168).
  - GFSM 2014 guidance focuses on lending/equity injections to individual corporations and does not explicitly discuss collective (standardized) nonmarket loan schemes (examples: student loans, SME schemes) where aggregate economic claim value is significantly lower than cash outlay from inception.
- Loan value deterioration:
  - 2025 SNA broadened circumstances for reassessment of nominal loan value (2025 SNA, paragraph A4.82).
  - 2025 SNA references “re-assessments in cases there is evidence of loan deterioration due to publicly known events (e.g., in the context of bank recovery operations)” (2025 SNA, paragraph 14.73).
  - BPM7 clarifies loan value resets can apply “even beyond the cases of bankruptcy and liquidation, or court decisions” (BPM7, paragraph 7.49).
  - Both manuals state that a mere appearance of fair value adjustments such as expected credit loss (ECL) on the creditor’s balance sheet is not sufficient for resetting loan value in statistics; the specific sufficient factors remain less clear (BPM7, paragraph 7.59).

### Four areas needing clarification (as identified)
- Treatment of individual loans provided on a non-market basis where the economic value of the effective financial claim is, from inception, significantly lower than the payment made by the creditor.
- Treatment of collective loan schemes provided on a non-market basis where the aggregate economic value of the effective financial claim is, from inception, significantly lower than the payment made by the creditor.
- Treatment of loans recorded at full nominal value at inception where evidence of the claim value’s deterioration emerges.
- Presentation of concessional loans (defined as loans that are expected to be repaid in full but attract an interest rate below the market rate or have further characteristics favorable to the debtor) in fiscal statistics.
- The GFSM Update Research Project 2.15 (Treatment of capital injections by government into corporations) covers the first topic; this note focuses on the latter three.

### Issue A — Treatment of collective loan schemes provided on a nonmarket basis

Background findings
- Distinction between loans and transfers: loans are expected to be repaid; transfers are not. This distinction weakens when loan products are neither expected to be repaid fully nor contain compensatory mechanisms (collateral, risk-reflective interest rates).
- Examples of loan products with prior expectation of non-repayments:
  - Income-contingent loans where outstanding balance may be automatically cancelled after a predefined period.
  - Small business loans by public lenders targeting entities unable to access market credit, often uncollateralized and below-market interest rates.
  - Loans in response to natural disasters or public health emergencies provided under lenient eligibility criteria, at below-market interest rates and without collateral.
  - Certain export loans provided by public agencies under lenient eligibility conditions or below-market interest rates without invoking further export credit guarantees.
- Such schemes can attract high non-repayment rates by design, in some cases exceeding half of the nominal value of the loan outlay.
- Ambiguity: 2025 SNA, BPM7 and GFSM 2014 do not explicitly address collective nonmarket loan products; uncertainty exists whether to apply headline nominal valuation or the capital injection partitioning approach.

Options identified
- Option A1: Provide no additional guidance (status quo).
  - Prioritizes drafting consistency with 2025 SNA and BPM7 but may not promote substantive consistency in compilation.
  - European countries already use ESA 2010 partitioning to justify deviation from nominal valuation and may continue this approach.
- Option A2: Include guidance clarifying circumstances in which partitioning of collective loan schemes is appropriate.
  - Extend GFSM 2014 and 2025 SNA paragraph 30.168 principles (partition lending and transfer components) to collective nonmarket loan products.
  - Practicality: individual-borrower analysis is unrealistic for schemes with hundreds or thousands of borrowers; operational criteria for partitioning are necessary.
  - Distinguish prior expectation of non-repayments (explicit transfer element) from poor performance observed post-issuance (covered under guidance on non-performing loans, 2025 SNA, paragraph 14.77).
  - Modern accounting standards (IFRS 9 and IPSAS 41) use forward-looking ECL approaches that can provide indications at inception whether significant losses from non-repayments are expected; statutory accounts prepared on an accrual basis should disclose relevant information.

Draft recommendations
- The updated GFSM should include new guidance on treatment of collective loan schemes provided on a non-market basis to increase clarity and consistency of application.
- Key considerations for the guidance:
  - Apply partitioning where there is a prior expectation that aggregate financial claim value will be materially lower than nominal loan outlay, treating the implicit transfer as a transfer component consistent with 2025 SNA paragraph 30.168.
  - Establish clear operational criteria to distinguish schemes with intended high non-repayment rates from conventional lending that later performs poorly.
  - Use forward-looking accounting indicators (ECL from IFRS 9 / IPSAS 41 or equivalent disclosures) and public policy statements as evidence where available to support partitioning judgements.
  - Ensure guidance supports practical implementation from both creditor and debtor perspectives, including in lower-capacity settings, to reduce scope for interpretation and inconsistent classification.

*GFSM 2014 Update Consultation: May 2026 — Discussion Note 2.10 Valuation and recognition of loans*

### 14. In the interest of increasing the clarity of the guidance without impeding the harmonization with

### 14. In the interest of increasing the clarity of the guidance without impeding the harmonization with

### Background and issue summary
- The recommendation in paragraph 14 proposes clarifying circumstances for partitioning collective (standardized) instruments legally structured as lending but lacking some defining economic characteristics, consistent with the GFSM 2014 approach to capital injections (as updated).
- Paragraphs 15–16:
  - 15: Proposes including new guidance on collective loan schemes provided on a nonmarket basis, where the aggregate economic value of the effective financial claim is, from inception, significantly lower than the value of cash outlay.
  - 16: Following written review, the GFS Advisory Committee (GFSAC) supported the Task Team’s recommendation of Option A2.
- Issue B (paragraphs 17–27) concerns the treatment of loans recorded at nominal value at inception where evidence of deterioration of the claim value emerges, in light of ambiguous guidance in the 2025 SNA and BPM7 on “value resets.”
- The term “value reset”:
  - Originates from note F.9 Valuation of Loans (Fair Value) of the FITT and from MGDD 2022 (MGDD 2022 para. 4.5.3.2.43).
  - Is not defined in the 2025 SNA; MGDD 2022 defines “reset nominal value” as the transaction value recorded for acquisition of problematic loans during bank recovery operations instead of their original nominal value.
  - 2025 SNA paragraph 30.145 prescribes a binary option in bailouts: either record loans purchased by government at full nominal value or at zero value, with the latter resulting in the entire amount of government assistance recorded as a capital transfer.
- The 2025 SNA enumerates three categories of events that may lead to reassessment of original loan values:
  - Debt restructuring.
  - Bankruptcy and liquidation.
  - Evidence of loan deterioration due to publicly known events (e.g., in the context of bank recovery operations).

### Key tensions and inconsistencies identified
- Both 2025 SNA and GFSM 2014 retain inconsistencies in valuation of loans acquired by government during bailouts:
  - 2025 SNA allows partial reduction in loan value according to expected recoverable amount (aligned with MGDD 2022 paragraphs 4.5.4.4.124-126) but elsewhere (para. 30.145) offers a binary treatment for bailouts.
  - GFSM 2014 para. A3.52 can be interpreted as implying a binary choice similar to 2008 SNA paragraph 22.145, but GFSM 2014 Figure A3.2 prescribes recording “an expense in the form of a capital transfer/grant to the corporation in distress for the difference between the financial asset acquired and the present value of the amount expected to be received”, implying partial reduction.
  - In practice, GFS compilers are more likely to use the decision tree in GFSM 2014 Figure A3.2; hence partial reduction is not substantively new for GFS but lacks explicit clarity.
- 2025 SNA and BPM7 language is ambiguous on:
  - The precise meaning of “publicly known events.”
  - Whether “value resets” correspond to transactions, other changes in volume of assets, or both.
  - Whether mere non-performance of a loan or appearance of bad debt provisions/ECL allowance is sufficient for resetting loan value (BPM7 indicates it is not).

### Interpretive guidance propositions (draft interpretation)
- Any “loan value resets” must reflect economic reality from both debtor’s and creditor’s positions (2025 SNA para. 13.45).
- Events that could qualify as evidence of “loan deterioration due to publicly known events” beyond bank recovery operations include:
  - New legislation (or a similar lawful act) overriding original contractual terms.
  - Activation of contingency elements embedded in the loan agreement (where the nature of the contingency did not warrant loan partitioning at inception), including contractual reduction in the value of the financial claim value in the case of a specific economic event.
- Classification of the “loan value reset” in the flow accounts should depend on the economic nature of the underlying event:
  - Record a transaction (specifically a capital grant or transfer) whenever there is an explicit or implicit intention to convey a benefit to the original debtor, even without a formal mutual agreement or the debtor's direct involvement.
  - Record an other change in the volume of assets if the reduction is a unilateral act without such an intention.
- Special case: pre-bailout loans
  - Pre-existing loans that continue in their original contractual form despite wider government support would, by default, remain recognized at nominal value because no technical debt restructuring occurred.
  - To eliminate a loophole allowing government to continue recording loan assets whose economic value may have effectively deteriorated to zero, application of the core principles of capital injection and bailout guidance could be extended to pre-existing loans; such loans may be deemed effectively forgiven where strong evidence exists that the debtor would have faced insolvency had it not been for the government intervention.
- Where significant uncertainty remains around the value of pre-bailout loans, nominal valuation should remain the default option.
- Fiscal statistics exception: where no effective write-off (or debt restructuring) policy exists (e.g., legal or practical prohibitions on write-offs, creditor’s failure to recover amounts over a multi-year period, or bad debt provisions approaching outstanding nominal balance), an exception to the general rule on nonperforming loans could be warranted and loan value resets considered.

### Options identified to address the issue
- Option B1: Provide no clarification of “loan deterioration due to publicly known events” in GFSM.
  - Rationale: Relatively few scenarios not already described in GFSM 2014 may fall under 2025 SNA and BPM7 guidance on value resets; these scenarios may be rare and discussion may yield limited direct benefit.
- Option B2: Provide examples of “loan deterioration due to publicly known events” (beyond loan restructure) without defining it as a precise statistical concept.
  - Rationale: Given the heterogeneity of examples in 2025 SNA/BPM7 and differences with Eurostat/MGDD 2022 usage, it may be preferable to elaborate through examples and interpretive guidance rather than a strict definition.
  - Eurostat (MGDD 2022) generally understands “reset” as an exchange value recorded for acquisition of problem loans below nominal value during bank recovery operations, where reliable information on irrecoverable loan value is available; this interpretation is narrower than 2025 SNA/BPM7 wording and not directly adoptable in GFSM without adaptation.
  - 2025 SNA and BPM7 are clear that non-performance alone is not sufficient for resetting loan value; resets must be economically equivalent to restructuring with respect to reducing the economic value of the debtor’s liability.

### Draft recommendations (summary)
- Option B2 recommended: Mirror the 2025 SNA and BPM7 guidance on loan “value resets” for loans recorded at nominal value at inception with further clarifications, including:
  - Provide specific examples of qualifying events beyond restructuring (e.g., new legislation overriding contractual terms; activation of contingency clauses) to reduce misinterpretation risk.
  - Clarify that reset treatment depends on whether the event implies an intention to convey benefit to the debtor (transaction/capital transfer) or is a unilateral valuation adjustment by the creditor (other change in volume of assets).
  - Extend capital injection and bailout guidance considerations to pre-existing loans where government interventions materially change the effective recoverability of such loans, while retaining nominal valuation as default where significant uncertainty remains.
  - Allow for an exception to nominal valuation where clear evidence demonstrates that no effective write-off or restructuring policy exists and recoverability is effectively nil.

*Source: GFSM 2014 Update Consultation: May 2026*

### 1. Provide examples of “loan deterioration due to publicly known events” (beyond loan

### Valuation and recognition of loans

### Examples of loan deterioration due to publicly known events
- Changes in legislation (or a similar lawful act) overriding contractual terms.
- Activation of contingency elements embedded in the loan agreement (where the nature of the contingency did not warrant loan partitioning at inception).
- Bailouts.

### Clarifications on loan resets
- “Loan resets” may be appropriate in jurisdictions with no effective loan restructure or write-off policy.

### Review of GFSM 2014 paragraph A3.52
- Recommendation to review GFSM 2014 paragraph A3.52 to avoid inconsistencies with updated guidance.

### Presentation of concessional loans — background
- Concessional loans are recorded at full nominal value.
- Concessional loans are defined as attracting an interest rate below the market rate; further characteristics include grace periods, repayment terms and maturity favorable to the debtor.
- Concessional loans are still expected to be repaid in full and are recorded at full nominal value in the core statistics; the concessional element is disclosed through memorandum items.
- The Notice of Decision maintained the GFSM 2014 treatment of concessional loans; that decision is not being revisited.

### Options identified for disclosing concessional loans (Issue C)
- Option C1: Maintain GFSM 2014-style recording of concessional loans (and associated implicit transfer) as memorandum items.
- Option C2: Supplement GFSM taxonomy by including “of which” subcategories under Loans (GFSM 2014 code 6204).
- Option C3: Include a supplementary version of a balance sheet statement where all assets are recorded at “market” value, approximated by fair value where no observable market price exists.

### Details and assessment of Option C1
- Default memorandum item reporting reduces the likelihood of the data being compiled and disseminated.
- GFSM 2014 includes memorandum items covering:
  - Outstanding nominal value of loans issued on concessional terms (GFSM 2014 code 6M391).
  - Value of the implicit “transfers” (GFSM 2014 code 6M392), defined as the difference between the nominal value of the debt and its present value using a relevant market discount rate (GFSM 2014, paragraph 7.246 and footnote 67).
- Memorandum items are conceptually consistent with 2025 SNA (paragraph 14.113) but are often not compiled because compilers prioritize core statistics.

### Details and assessment of Option C2
- “Of which” breakdown under Loans (6204) example:
  - 6204 Loans (at nominal value)
    - 62041 Loans provided on market terms (at contractual nominal value)
    - 62042 Concessional loans (at contractual nominal value)
- Concessional loans remain presented at nominal value; concessionality elements (implicit transfers) remain in memorandum items.
- For loans provided to enterprises in financial distress or under nonmarket standardized lending schemes, nominal value must be defined as the value after any partitioning is applied.
- The “of which” breakdown may be limited to loan assets; symmetric reporting of government loan liabilities at discounted proxy-“market” values is debatable and may be of limited analytical utility.
- Analytical limitations:
  - Focus on nominal values confines adjusted (proxy-“market”) nominal values to memorandum items, where they may not be reported.
  - Concessionality elements remain hidden at level of fiscal aggregates (balance sheet net debt and net worth; flow aggregates net operating balance, net lending / net borrowing).

### Details and assessment of Option C3
- Introduce a supplementary balance sheet statement reporting concessional and conventional loans at adjusted (proxy-“market”) values (in practice, fair values).
- No new taxonomy elements required; adjusted nominal values would appear in the supplementary balance sheet only.
- Use of alternative values would imply alternative flow values (recognition of implicit transfers at initial recognition and potential subsequent revaluations), but no supplementary flow statements are envisaged in the interest of proportionality.
- Parallels with SNA: SNA contains core accounts and extended/thematic tables; a supplementary GFSM balance sheet would sit outside the main integrated set of analytical tables.
- Implications for other instruments: other accounts receivable (GFS code 6208) could also be reported at adjusted nominal (proxy-“market”) values, e.g., unrecoverable subsidy and benefit overpayments.

### Conceptual alignment and aggregates
- Introduction of proxy-“market” values raises questions about which values should be included in balance sheet aggregates described as measured at “market value”.
- Choices:
  - Maintain 2025 SNA and BPM7-consistent approach to loan valuation (reporting at full nominal value), or
  - Adopt adjusted values for concessional loans unique to GFSM and break alignment with 2025 SNA and BPM7.
- Using the supplementary balance sheet would align better with “market value” notion but break conceptual alignment with 2025 SNA, BPM7, and GFS flow statements.

### Draft recommendations and rationale
- Option C1 recommended: Maintain consistency with GFSM 2014 approach to disclosing the economic value of concessional loans and the associated implicit transfer as memorandum items.
- Rationale:
  - Changes required to implement and maintain alternative presentations may be disproportionate to analytical benefits.
  - “Of which” breakdown offers few advantages without memorandum items disclosing the implicit transfer (6M392).
  - Supplementary balance sheet would duplicate the original balance sheet while introducing broader changes to loan presentation beyond the original intention.
  - Risks of confusion around meaning of balance sheet aggregates described as measured at “market value” and misalignment with 2025 SNA and BPM7 concepts such as net financial worth.
- Additional recommendation: Introduce a new decision tree to summarize scenarios associated with lending and their statistical treatment.
  - GFSM 2014 already contains scenarios referencing loan recognition and valuation; a decision tree would help compilers navigate updated text.
  - Draft decision tree to be prepared once decisions are reached on this discussion note and GFSM Update Research Project 2.15 (Treatment of capital injections by government into corporations).

### GFSAC views and consultation questions
- Following written review, GFSAC supported the Task Team’s recommendation of Option C1.
- An earlier version of the discussion note was shared with GFSAC for written review in April 2026; task team recommendations are consistent with preliminary views of most GFSAC members.
- Global consultation questions include:
  - Agreement with continuation of GFSM 2014 approach of recording loans at nominal value consistent with SNA and BPM principles.
  - Support for introducing a new decision tree.
  - Preferences and comments on Options A1/A2 (collective loan schemes), B1/B2 (treatment where claim value deterioration emerges), and C1/C2/C3 (presentation of concessional loans).
  - Practicality and likelihood for countries to compile necessary data if options adopted.

### Relationship with Eurostat guidance (ANNEX 1)
- Many conclusions are substantively consistent with Eurostat’s MGDD 2022.
- MGDD 2022 primary concept: loans where at inception a significant proportion of outlay is not expected to be repaid should be partitioned into capital transfer and genuine lending elements.
- MGDD 2022 chapter 4.5 encourages recording loan assets at their “reset” nominal value (defined as equal to the transaction value) in financial institutions’ bailouts (MGDD 2022, paragraph 4.5.3.2.43); this note recommends a similar global approach with certain technical differences.
- Caution on adopting MGDD 2022 drafting wholesale:
  - Some MGDD chapters predate IFRS 9 and IPSAS 41 or respond to specific local problems.
  - Clarifications in GFSM are envisaged to be drafted independently, without harmonizing wording with MGDD 2022.
- On income-contingent loans:
  - The distinction between income-contingent and other contingent loans may be redundant for GFSM purposes.
  - Relevant characteristic is that the economic value of a financial claim may, from inception, be significantly lower than the cash outlay value.
  - Contingent loans with no significant transfer element but only concessionality (e.g., contingent interest rate or repayment schedule where loans must still be repaid in full) could be treated as other concessional loans and recorded at nominal value.
  - Eurostat’s assertion that contingent loans fail to establish an unconditional liability by design is debatable given 2025 SNA (paragraph 4.101) and GFSM 2014 (paragraph 3.45) definitions of liabilities as unconditional under contractual terms.
  - Methodology to partition contingent loans is substantively similar to partitioning non-contingent loans.
- Recommendation: refer to income-contingent loans as an example rather than a unique loan type requiring distinct statistical rules.

*GFSM 2014 Update Consultation: May 2026*

### ANNEX 2: PRACTICAL CONSIDERATIONS PERTAINING TO LOAN PARTITIONING

### ANNEX 2: PRACTICAL CONSIDERATIONS PERTAINING TO LOAN PARTITIONING

### Scope and conceptual overview
- The direct use of accounting fair value adjustments to inform loan partitioning is not fully compatible with the loan valuation 2025 SNA and BPM7.
- The 2025 SNA (and the existing guidance in the GFSM 2014) recommends partitioning of loans into an expenditure component and a genuine financial transaction component under certain conditions, but this recommendation does not translate into a direct use of fair values.
- Conceptually, compilers of macroeconomic (including fiscal) statistics may not be better placed than public entity accountants to estimate the value of the transfer component embedded in a lending scheme; the compilation issue is how to avoid implicit inclusion of non-relevant fair value factors in the statistical valuation.

### Components of fair value adjustments (full scope)
- Credit risk (ECL)
- Market interest rate adjustments
- Liquidity discount
- Embedded options
- Day one gains and losses
- Counterparty-specific factors

### Relevance of components for statistical partitioning
- Only the following fair value adjustment components are relevant to determining the exact proportion of the loan outlay that could be treated as a transfer:
  - Credit risk (ECL)
  - Counterparty-specific factors
- The other components should be discarded for statistical partitioning purposes:
  - Market interest rate adjustments
  - Liquidity discount
  - Embedded options
  - Day one gains and losses
- Rationale example:
  - Market interest rate adjustment reduces the fair value of loans priced below market yields, which contradicts the statistical approach to recording concessional loans at nominal value and therefore should be discarded (GFSM 2014, paragraph 7.246).

### Practical approaches and trade-offs
- For larger schemes with consequential fiscal treatment, the responsible public entity may run an accounting model that isolates only credit risk and relevant counterparty-specific factors for statistical purposes, effectively reducing the nominal value of the outlay by amounts unlikely to be repaid but making no further valuation adjustments.
  - Benefit: maintains conceptual consistency with the 2025 SNA, BPM7 and existing GFSM guidance.
  - Drawbacks:
    - Places additional burden on data suppliers.
    - Resulting estimates would often be close to fair value yet different from it, creating potential confusion among users.
    - The analytical issue: adjustments are intertwined (the sequence in which adjustments are modelled affects values), so values of each adjustment type are not independent.
- In practice, fair value adjustments may be a reasonable proxy for partitioning where the proportion of expected non-repayments is large.
  - It is not uncommon for the loan schemes discussed to attract "25 to 50 percent" non-repayment rates.
  - When expected non-repayments are large, ECL is likely to be the dominant component of fair value adjustments, so fair value defined by IFRS 9 and IPSAS 41 and equivalent national standards may be a suitable and practical proxy for a partitioned nominal value in statistics.
  - However, applicability varies across schemes and jurisdictions and requires case-by-case assessment by statistical compilers.
  - Example caveat: high expected non-repayments may be accompanied by concessional interest rates; the concessional interest rate leads to significant downward fair value adjustments that should be absent from the statistical valuation.

### Implementation guidance for statistical compilers
- Avoid implicit inclusion of market interest rate and liquidity adjustments, embedded options, and other non-credit factors when partitioning loans for statistical purposes.
- Where feasible and material, seek accounting information that disaggregates fair value adjustments (for example, showing the ECL component separately), recognizing:
  - Public financial institutions are more likely to have granular information in annual financial statements.
  - The intertwined nature of adjustments may limit the independence of each reported component.
- Apply case-by-case assessments to determine whether fair value is an acceptable proxy, giving particular attention to:
  - The size of expected non-repayment rates.
  - The presence of concessional interest rates or other features that produce non-credit-related fair value adjustments.

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/may-2026/gfsm-discussion-note-210-valuation-and-recognition-of-loans.pdf_