7.3.3 Cure/exit from non-performing status

Credit institutions should reclassify NPEs, including FBEs, as performing in accordance with Annex V to Commission Implementing Regulation (EU) No 680/2014. Credit institutions should perform a financial analysis of the borrower to establish the absence of concerns regarding the borrower’s ability to pay its credit obligations.

Credit institutions’ policies for the reclassification of non-performing FBEs should specify practices for dispelling concerns regarding the borrower’s ability to comply with the post-forbearance conditions set out in Annex V to Commission Implementing Regulation (EU) No 680/2014. These policies should establish criteria in terms of payments made during the cure period of at least one year and define the borrower’s ability to comply with post-forbearance conditions (to the extent that full repayment of the debt is likely) without being reliant on the realisation of collateral at least by demonstrating payments of a not insignificant amount of principal. These policies should require payments of both principal and interest.

In addition, where a borrower has other exposures to a credit institution that are not the subject of a forbearance measure, the credit institution should consider the impact and the performance of these exposures in its assessment of the borrower’s ability to comply with post-forbearance conditions. The consideration of arrears should not change the level of application of non-performing status, in accordance with Annex V to Commission Implementing Regulation (EU) No 680/2014, and only exposures to which forbearance measures have been applied should be identified as FBEs.

The existence of contract terms that extend the repayment period, such as grace periods for the principal, should confirm the classification of these FBEs as non-performing until the requirements of Annex V to Commission Implementing Regulation (EU) No 680/2014 have been satisfied. The fact that the one-year cure period has elapsed should not automatically lead to reclassification to performing unless regular payments have been made over these 12 months and an assessment of unlikeliness to pay has been concluded with no indication of unlikeliness to pay.