Financial Difficulties

The concept of financial difficulties is defined in paragraph 163 of the Draft ITS on Supervisory Reporting on forbearance and non-performing exposures under Article 99(4) of Regulation (EU) No 575/2013 as a situation where the debtor is facing or about to face difficulties in meeting its financial commitments. The assessment of the financial difficulties of the debtor should be based on the situation of the debtor only, disregarding collateral or any guarantees provided by third parties, as the focus of the definition is the financial difficulties of a particular debtor and its (in)ability to meet its financial obligations. When a debtor is in financial difficulties, and only in this case, a modification or a refinancing of an exposure qualifies as a concession and hence the exposure is considered as forborne. Paragraph 165 provides some evidence of what a concession includes, but other situations are possible (for instance when a debtor is in financial difficulties, an exposure modified at market rate will be considered as forborne). Each institution is responsible for using its own judgement when identifying situations of financial difficulties, subject to the provisions of paragraph 172, laying down situations that always qualify as forbearance, i.e. situations where the debtor should always be considered in financial difficulties and where any modification or refinancing is therefore a concession. DISCLAIMER: The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal, which may differ from the text of the draft ITS to which this Q&A relates.