6.1.1 Viable versus non-viable forbearance

Credit institutions should distinguish between viable forbearance measures contributing to reducing the borrower’s exposure and non-viable forbearance measures.

Credit institutions should consider the following factors when assessing the viability of forbearance measures:

• a) The credit institution can demonstrate (based on objectively verifiable evidence) that the borrower can afford the forbearance solution, i.e. full repayment is expected.
• b) The resolution of outstanding arrears is fully or mostly addressed and a significant reduction in the borrower’s balance in the medium to long term is expected.
• c) In cases where previous forbearance measures have been granted, including any previous forbearance measures considered in the long run, the credit institution should ensure that additional internal controls are implemented to ensure that this subsequent forbearance treatment meets the viability criteria outlined below. These controls should include, at a minimum, that such cases are explicitly brought to the attention of the risk control function ex ante. Furthermore, the explicit approval of the relevant senior decision-making body should be sought.
• d) Forbearance measures with a short-term time horizon are applied temporarily and the credit institution is able to demonstrate, based on objectively verifiable evidence, that the borrower has the ability to repay the original or modified amount on a full principal and interest basis commencing from the expiry date of the short-term temporary arrangement.
• e) The measure does not result in multiple consecutive forbearance measures having been granted to the same exposure.

The assessment of viability should be based on the financial characteristics of the borrower and the forbearance measure to be granted at that time. The viability assessment should take place irrespective of the source of forbearance. Different sources for forbearance measures are, inter alia, the borrower using a forbearance clause embedded in a contract, bilateral negotiation of forbearance between a borrower and a credit institution and a public forbearance scheme extended to all borrowers in a specific situation.