Response to consultation paper amending Guidelines on definition of default
1. Question 1: Do you believe the current guidelines result in some exposures under forbear-ance measures to be incorrectly classified as defaults, thus hindering proactive, preventive and meaningful restructurings given the detrimental effects that defaulted status has for the affected obligors? If so, please further specify the characteristics of the exposures, which you deem as being subject to an incorrect classification of default.
In this context, it should be made clear that the implementation of several forbearance measures does not necessarily lead to a classification as default. Particularly in the context of complex restructurings, circumstances can change rapidly and necessitate further forbearance measures.
2. Question 2: Do you think that relaxing the criteria for the minimum period before returning to the non-defaulted status for defaulted forborne exposures could be an appropriate measure to alleviate a higher burden on your institution and clients? How material would the difference be in your case between the amounts of forborne exposures classified as NPE and as defaulted if the minimum one-year probation period in the definition of default were reduced to three-months for certain forborne exposures (with change in NPV below 5% and no loss on the nominal amount)? Would that proposal create additional operational burden or practical impediments? Do you see support such proposal, and if so, for which reasons?
We welcome a reduction in the one-year probationary period for forborne exposures. This would also be beneficial for debtors, as it would be easier for credit institutions to provide additional funds for debt restructuring if customers could return to performing status more quickly. However, this would also have to be accompanied by a removal of NPE status.
3. Question 3: Do you see any alternatives other than those referred to in this section that the EBA should consider under Article 178(7) CRR to update the Guidelines and encourage insti-tutions to engage in proactive, preventive and meaningful debt restructuring to support ob-ligors?
A simplification or relaxation of the criteria for classification as ‘no longer non-performing’ set out in Article 47a CRR would be desirable.
4. Question 4: Do you use internal definitions of default and NPE that are different from each other? Which differences are these and how material are those differences? Do you have any reasons or observed practical impediment that warrants a different definition of NPE and default? If so, please provide examples where a different definition of NPE and default is appropriate.
There is no distinction in the definition of default and NPE.
5. Question 5: Would a potential lack of alignment between the default and NPE definition lead to issues in accounting in your case?
For accounting purposes, separate identification of defaulted and NPE positions would be required, which would entail additional technical effort.
6. Question 6: Do you agree that no specific provisions should be introduced for moratoria on the grounds of the sufficient flexibility of the revised framework? In case you think the pro-posed alternative treatment for legislative moratoria should be included in these guidelines, do you have any evidence of the definition of default framework being too procyclical in the context of moratoria? Do you agree with the four conditions that need to be satisfied?
We believe that the proposed alternative treatment for moratoriums should be included in the guidelines, as we consider that the ‘flexibility of the legal framework’ cited by the EBA is not sufficiently clear and precise in the CRR or in the guidelines.
7. Question 7. Do you agree with the revised treatment of technical past due situations in rela-tion to non-recourse factoring arrangements? And if you do not agree, what are the rea-sons? Do you have any comments on the clarifications of paragraphs 31 and 32 in the current GL DoD?
An adjustment of the technical overdue period to 90 days is urgently needed, as we in practice see that the payment behavior for factoring receivables (resulting from trade receivables) is completely different from that for credit liabilities. The short period of 30 days for technical overdue payments means that customers default despite having good credit ratings. There is also the option of applying the calculation logic for technical delinquency differently. Such an approach should also be duly considered.