Should an exceeded overdraft facility, which is gradually reduced by the bank as stipulated in terms and conditions, be classified as forborne exposure even if the customer does not meet any criteria for default?
If a customer, who does not meet any criteria for default, exceeds the overdraft limit of his current account, the bank checks the account activities of the customer within the past few months.
According to the terms and conditions of the bank, an overdraft limit can be adjusted at any time by the bank and the overdraft amount is daily due. Hence, in case the average income level of the customer does not fit the currently set overdraft limit, the limit will be either gradual reduced or set to 0 by the bank. The customer continues to use his current account for payment transactions and he can check his current overdraft limit at any time on his bank statement.
The gradual reduction of an overdraft facility for a customer does not show any characteristics of a deferred payment agreement as the outstanding amount was and is daily due since first occurrence.was and is daily due since first occurrence.
Article 41 (a) of regulation (EU) n°680/2014 (ITS on Supervisory Reporting) defines overdrafts as debit balance of current accounts.
According to paragraphs 240, 241, 242, 244 of Annex V of the ITS, forbearance measures are concessions towards a debtor that is experiencing difficulties to meet its financial conditions either in case of (i) modification of the previous terms and conditions of a contract or (ii) refinancing of a troubled debt contract by mean of another debt contract under more favorable terms.
- the decrease in overdraft limit is provided under the terms and conditions of the overdraft facility contract,
- there is no specific refinancing contract set up,
- the gradual reduction of the overdraft facility consists in stricter financial conditions which is opposite to favorable arrangements,
the exposure does not meet the criteria to be classified as forborne.