Return to non default status

For defaults other than those related to a distressed restructuring in accordance with Article 178(3)(d) CRR, paragraph 71(a) of the EBA/GL/2016/07 requires the assessment of whether, at the end of the observation period of at least three months, any trigger of default continues to apply to a previously defaulted exposure. Therefore, delays in payments up to 90 days and non-material past due amounts do not represent, per se, an automatic trigger to keep such exposures in the default status. However, according to paragraph 71(d) of the EBA/GL/2016/07, at the end of the observation period of at least 3 months institutions should perform an assessment, and, where the institution still finds that the obligor is unlikely to pay its obligations [..] the exposures should continue to be classified as defaulted”.  Pursuant to paragraph 73(b) of the EBA/GL/2016/07, credit obligations classified as defaulted due to a distressed restructuring in accordance with Article 178(3)(d) CRR may not be reclassified to the non-defaulted status at the end of the observation period of at least one year as referred to in paragraph 73 of the EBA/GL/2016/07 if during the probation period the payments have not been made regularly according to the schedule applicable after the restructuring arrangements.   In order to reclassify credit obligations subject to a distressed restructuring in accordance with Article 178(3)(d) CRR to the non-defaulted status institutions have to ascertain - at the end of the observation period of at least one year (or subsequently with a minimum quarterly frequency) - that all payments envisaged in the schedule applicable after the restructuring arrangements have occurred in a way that no past due credit obligations exist at the end of the observation period. No materiality threshold applies in this respect.  It should however be noted that the return to a non- defaulted status is not solely assessed on the absence of days past due at the end of the probation period, but also with other criteria specified in paragraph 73(d). In particular, Paragraph 73(d) of the guidelines on the definition of default requires that ‘no indications of unlikeliness to pay as specified in Article 178(3) of Regulation (EU) No 575/2013 or any additional indications of unlikeliness to pay specified by the institution apply’. In particular, according to paragraph 54 of the guidelines on the definition of default, exposures classified as forborne non-performing should be classified as default. Since Article 47a(3)(c) of the CRR requires an exposure that has been under distressed restructuring to be considered as non-performing in the case it becomes more than 30 days past due, there is a rebuttable presumption that the probation period referred to in paragraph 72 of the guidelines on the definition of default should be reset as soon as the exposure becomes more than 30 days past due, unless this delayed payment is not related to financial difficulties of the obligor.