Non-recourse assets

Non-recourse assets – In some cases, a financial asset may have contractual cash flows that are described as principal and interest, but that do not represent the payment of principal and interest.

The essential difference between a recourse and non-recourse asset has to do with which assets a lender can claim against if a borrower fails to repay a loan. Many loans are taken out with some form of collateral, or assets of a certain value that the lender can take if the borrower does not pay the money back as outlined in the loan.

In both recourse and non-recourse loans, the lender is allowed to take possession of any assets that were used as collateral to secure the loan. In most cases, the collateral is the asset that was purchased by the loan. For example, in both recourse and non-recourse mortgages, the lender would be able to seize and sell the house to pay off the loan if the borrower defaults.


  • After collateral is collected, lenders of recourse loans may still go after a borrower’s other assets if they have not recouped all of their money.
  • With a non-recourse loan, lenders can collect the collateral, but may not go after the borrower’s other assets; in other words, they have no further recourse.

This may be the case if the financial asset represents an investment in particular assets or cash flows and, as a result, the contractual cash flows do not meet the SPPI test. For example, if the contractual terms stipulate that the financial assets’ cash flows increase as more cars use a particular toll road, such terms are inconsistent with a basic lending arrangement.

This may also be the case when a creditor’s claim is limited to specified assets of the debtor or to the cash flows from specified assets. However, the fact that a financial asset is non-recourse does not in itself mean that the SPPI test is not met.

In this case, the holder of the asset has to assess (‘look through to’) the underlying assets or cash flows to determine whether the terms of the non-recourse asset give rise to other cash flows or limit the cash flows so that they are not consistent with the SPPI test. Whether the underlying assets are financial or non-financial assets does not in itself affect this assessment. [IFRS 9 B4.1.15–17]

An instrument would not fail to meet the SPPI test simply because it is ranked as being subordinate to other instruments issued by the same entity.

An instrument that is subordinated to other instruments may meet the SPPI test if the debtor’s non-payment is a breach of contract and the holder has a contractual right to unpaid amounts of principal and interest, even in the event of the debtor’s bankruptcy. [IFRS 9 B4.1.19]

Non-recourse assets meeting the SPPI test

It appears that, if the contractual payments due under a financial asset are contractually determined by the cash flows received on specified assets, then the financial asset generally cannot meet the SPPI test unless the criteria described in ‘Contractually linked instruments‘ are met. Here is the decision tree illustrating these criteria:

Non-recourse assets

For example, the SPPI test is not met for a loan to a property developer on which interest is payable only if specified rental income is received. However, it appears that a financial asset that represents a full or pro rata share in the contractual cash flows of an underlying financial asset that meets the SPPI test could itself meet the SPPI test.

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Non-recourse assets

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