40. Senior management should be able to demonstrate that it understands and appropriately considers …

Senior management should be able to demonstrate that it understands and appropriately considers inherent risks when pricing lending exposures. Credit institutions should take particular care of the following fact patterns, which are potentially indicative of inadequate estimates of ECL:

• a. the granting of credit to borrowers based on fragile income streams (that could become non-recurrent upon a downturn) or with no documentation or limited verification of borrower income sources;
• b. high debt service requirements relative to the borrower’s net available expected cash flows;
• c. flexible repayment schedules, including payment vacations, interest-only payments and negative amortisation features;
• d. for real estate and other asset based financing, lending of amounts equal to or exceeding the value of the financed property or otherwise failing to provide an adequate margin of collateral protection;
• e. undue increases in modifications of lending exposures due to financial difficulties faced by the borrower²⁵ or renegotiations/modifications of lending exposures for other reasons (such as competitive pressures faced by credit institutions);
• f. circumvention of the classification and rating requirements, including rescheduling, refinancing or reclassification of lending exposures;
• g. undue increases in the volume of credit, especially in relation to the increase in the volume of credit by other lenders in the same market; and
• h. increasing volume and severity of past-due, low-quality and impaired credit.

²⁵ See also Commission Implementing Regulation (EU) 2015/227 of 9 January 2015 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council (OJ L 41, 20.2.2015, p. 1) which establishes specific definitions of forbearance and non-performing exposures.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

• EBA - Published by the European Banking Authority at https://www.eba.europa.eu/