A clarification regarding the scope of application for forbearance of Non-performing Exposures is required.
As defined in para 172, “exposures shall be treated as forborne if a concession has been made, irrespective of whether any amount is past-due or of the classification of the exposures as impaired in accordance with the applicable accounting standards or as defaulted in accordance with Article 178 of Regulation (EU) No 575/2013.” Para 176 defines when the forbearance classification shall be discontinued. It is questionable, however, if exposures or debtors that received a concession in the last 12 months (“cure period”), but are now in liquidation, termination or insolvency procedure, still have to be considered as forborne exposure. In our institution, debtors in liquidation, termination or insolvency procedure are classified in a separate default class where they will neither receive any new concessions nor return to the performing area or into a default class where, e.g., 90dpd exposures or restructured exposures are classified. Liquidations or insolvency procedures may take several months or even years which also leads to the problem of application and interpretation of the cure period of 12 months.
In case forbearance measures do not result in an improvement in the situation of the debtor but in liquidation, termination or insolvency procedure, the exposure to which forbearance measures is related shall be classified as non-performing forborne exposure and reported as such in FINREP. Indeed, the liquidation, termination or insolvency procedure can be considered as a default event in application of Article 178(3) (e) and (f) of Regulation (EU) 575/2013 (CRR), and even if it were not identified as a default event, it evidences a concern regarding the full repayment of the exposure according to the post-forbearance conditions.