71. Credit institutions should consider the following phases in the NPE life cycle, taking into …

Credit institutions should consider the following phases in the NPE life cycle, taking into account also the specificities of the products and the nature of the arrears:

• a) Early arrears (up to 90 days past due):²³ during this phase, the focus should be on initial engagement with the borrower for early recoveries and on collecting information to enable a detailed assessment of the borrower’s circumstances (e.g. financial position, status of loan documentation, status of collateral, level of cooperation, etc.). The type of exposure and collateral should ultimately determine the most suitable workout strategy, which may involve forbearance measures with a short-term time horizon, to be applied when necessary (including during this initial period, where appropriate), with the aim of stabilising the financial position of the borrower before establishing a suitable workout strategy. In addition, the credit institution should, where appropriate, seek options to improve its position while taking into account the rights and interests of consumers (e.g. by signing new loan documents, perfecting outstanding collateral, minimising cash leakage, taking additional collateral if available). A dedicated arrears management policy should contain guidance on the overall NPE workout procedures and responsibilities, including handover triggers.
• b) Late arrears/forbearance: credit institutions should implement and formalise forbearance arrangements with borrowers in this phase. Forbearance arrangements should be put into place only where the credit institution is satisfied that the borrower can afford to make the repayments. In considering whether a restructuring option is viable, credit institutions should have regard to Article 28 of Directive 2014/17/EU²⁴ and other legal provisions aimed at protecting consumers, to the extent applicable. A forbearance arrangement should be monitored for at least one year in line with Commission Implementing Regulation (EU) No 680/2014, given the increased risk, before it can eventually be transferred out of the NPE WUs if no further NPE triggers are observed.
• c) Liquidation/debt recovery/legal cases/foreclosure: if no viable forbearance solution has been found due to the borrower’s financial circumstances or cooperation level, credit institutions should perform a cost–benefit analysis of different liquidation options, including in-court and out-of-court procedures, having regard also to the interests of the borrower. Based on this analysis, credit institutions should speedily proceed with the chosen liquidation option, supported by legal and business liquidation expertise. Credit institutions that are engaged in extensive use of external experts should ensure that sufficient internal control mechanisms are in place to ensure an effective and efficient liquidation process. NPEs that have been categories as such for a long period of time should be given special attention in this regard. A dedicated debt recovery policy should contain guidance on liquidation procedures.

²³ Unlikely to pay exposures could be part of either early arrears or NPE WUs, depending on their complexity.

²⁴ Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34).

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