EBA · 2016_2842 Final Q&A

Realisation of collateral and unlikeness to pay

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
99, para. 4
Topic
Supervisory reporting - FINREP (incl. FB&NPE)
Submitted by
Competent authority
Submitted
2016-07-22
Answered
2017-02-03
Answer provided by
ESAs (EBA, ESMA, EIOPA)
Browse ECB SSM Register → More Q&As on this regulation →

Question

Is exposure considered non-performing according to Art 145(b) ITS also in the case where: (i) the debtor is assessed as unlikely to pay its credit obligation without collateral either being repossessed or sold voluntarily; (ii) a voluntary sale is assessed as highly feasible.

Background

Some customers receive a term extension up to the retirement age. They are assessed as unlikely to pay their credit obligation without collateral either being repossessed or sold voluntarily. The exposures are classified for the first 12 months as NPL, impaired and non-defaulted. However, after 12 months, these loans are re-classified to performing, non-impaired and non-defaulted.

Answer

According to Part 2, paragraph 148 of Annex V to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting), the classification of exposures as non-performing should be done without taking into account the existence of any collateral. Consequently, fully collateralized exposures in unlikely-to-pay situations should be classified as non-performing, even when it is assumed that the customer is willing to realise the collateral on a voluntary basis in order to avoid a legal enforcement by the credit institution.

Original source: European Banking Authority, Q&A ID 2016_2842

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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