Response to consultation paper amending Guidelines on definition of default
8. Question 8. Do you agree with the other changes to the guidelines to reflect updates from Regulation (EU) 2024/1623?
1.The consultation paper considered the possibility of cutting the probation period for defaulted assets under distressed restructuring from one year to three months. One of the preconditions to shorten the probation period is that a material payment should in total be equal to the amount that has been written-off under the forbearance measures (see p.14 of the CP). Does "writing off" in this context mean the depreciation and thus the derecognition of a position or the impairment of a position?
2. The FAQs (question 5) of EBA GL 2016/07 clarify that the effective interest rate at the time the loan is granted must always be used to calculate the 1% threshold. However, it would useful to incorporate the definition of "original" into the text of the guideline, so that one does not have to rely on the FAQs to understand and correctly interpret the terms. A terminology such as "at origination" instead of "original" would also be better.