7.3.1 Forbearance

For the purpose of implementing forbearance measures, credit institutions should be able to identify signs of possible future financial difficulties at an early stage. In order to do so, the assessment of the financial situation of the borrower should not be limited to exposures with apparent signs of financial difficulties. An assessment of financial difficulties should also be conducted for exposures with regard to which the borrower does not have apparent financial difficulties but in relation to which market conditions have changed significantly in a way that could impact the borrower’s ability to repay (e.g. bullet loans the repayment of which will depend on the sale of immovable property or foreign currency loans).

The assessment of any financial difficulties on the part of a borrower should be based on the situation of the borrower only, disregarding collateral or any guarantees provided by third parties. When assessing the financial difficulties of the borrower, credit institutions, in accordance with Annex V to Commission Implementing Regulation (EU) No 680/2014, should consider at least the following rebuttable circumstances:

• a) borrower/facility more than 30 days past due during the three months prior to its modification or refinancing;
• b) increase in probability of default (PD) of credit institution’s internal rating class during the three months prior to its modification or refinancing;
• c) presence on a watch list during the three months prior to its modification or refinancing.

Exposures should not be identified as forborne when concessions are made to borrowers who are not in financial difficulties. Credit institutions should distinguish, based on a detailed financial assessment, between renegotiations or rollovers granted to borrowers not in financial difficulties and forbearance measures such as concessions granted to borrowers in financial difficulties, in accordance with Annex V to Commission Implementing Regulation (EU) No 680/2014.

Granting new conditions such as a new interest rate more favourable than the rate borrowers with a similar risk profile could obtain may be considered an indication of such a concession when the credit institution determines that the reason for the new rate is the financial difficulties of the borrower. The provision of more favourable new conditions than those practised by the market should not be considered a prerequisite for the identification of concessions and therefore forbearance. In line with Annex V to Commission Implementing Regulation (EU) No 680/2014, when a borrower is in financial difficulties, a change in conditions in line with what other borrowers with a similar risk profile could get from the credit institution should qualify as a concession, including when borrowers are included in public forbearance schemes that are offered by credit institutions.

Borrowers may request modifications in the contractual conditions of their loans without facing or being about to face difficulties in meeting their financial commitments. Credit institutions should perform an assessment of the borrower’s financial situation when such modifications to contractual conditions have an impact on payment performance.