For exposures to central governments, central banks, regional governments, local authorities, public sector entities, institutions and corporates, institutions must estimate PDs by obligor grade from long‑run averages of one‑year default rates. PDs for highly leveraged obligors or those with predominantly traded assets must reflect underlying asset performance in stressed volatility periods. Purchased corporate receivables may use EL by grade or EL‑derived PD/LGD where estimation standards and the LGD concept are met. Internal data, mappings to ECAIs, statistical models and judgemental adjustments are permitted subject to comparability, documented mapping and avoidance of bias. Historical observation periods must include at least five years for at least one source and PDs must be arithmetic count‑weighted averages; a phased two‑to‑five year transition is permitted for firms without LGD or IRB‑CCF approval.

For retail exposures, PDs must be estimated by obligor or facility grade or pool from long‑run average one‑year default rates, with facility‑level calculation only where the default definition is applied at facility level. PDs may be derived from total loss estimates with an appropriate LGD or PD, but internal assignment data is primary; external or pooled data and models are permitted only where strong links exist between assignment processes and the external source and between internal risk profile and the external composition. Institutions must identify seasoning effects; purchased retail receivables may use external and internal reference data. The EBA shall develop draft RTS for competent authority assessment of PD methodologies and submit them to the Commission by 10 July 2026, and the Commission may adopt delegated RTS under Regulation (EU) No 1093/2010.