Treatment of cured defaulted exposures

Minimum conditions for reclassification of a defaulted exposure or obligor to a non-defaulted status, for the purposes of the application of Article 178(5) of Regulation (EU) 575/2013 (CRR), are specified in the Guidelines on the application of the definition of default under Article 178 of Regulation (EU) No 575/2013 (EBA/GL/2016/07).   Except for situations referred to in paragraph 72 of said Guidelines (distressed restructuring on a defaulted exposure is subject to a probation period of at least one year – see also Q&A 4867 ), all conditions from paragraph 71 of such Guidelines should be satisfied for the reclassification of a defaulted exposure or obligor to a non-defaulted status.   As no trigger of default should continue to apply during a 3-months minimum probation period in accordance with point (a) of paragraph 71 of the Guidelines, no indication of unlikeliness to pay should be met in accordance with Article 178(1)(a) CRR and no material amount should be past due in accordance with point (b) of Article 178(1) CRR during this period.   Furthermore, as part of the assessment required by point (d)  (d) of paragraph 71 of the Guidelines, point (b) of that paragraph paragraph  required that the institution takes into account the behavior of the obligor during this probation period before reclassifying a defaulted exposure to non-defaulted status, and thus the institution should consider any  past due amount during this period in the analysis of the behavior of the obligor.