Clarification is requested surrounding non-performing probation periods where forbearance precedes classification of non-performance. Scenario 1) T0 - A customer’s performing exposure has a concession event applied and is classified as performing forborne and begins the 2 year performing assessment. 2) T1 - At a later date the customer becomes non-performing through criteria in paragraph 145 (e.g. “material exposures which are more than 90 days past-due”) (not by paragraph 179 as deemed not applicable in Q&A 2014_736) and is classified as non-performing forborne. 3) T2 – Customer exits non-performing criteria. In the above scenario at which point would non-performing probation period start from? a) The non-performing probation period starts from T0, the date of where the forbearance measure is extended. i.e. Probation starts from before the exposure is classified as non-performing; b) Non-performing probation period starts from T1; c) Non-performing probation period starts from T2; or d) There is no non-performing probation period which contradicts Q&A 2014_735. It has been confirmed by the EBA in Q&A 2014_735 that a non-performing probation period is required in the scenario.
EBA Q&A Question ID 2014_1018 states that the “one year cure period starts running since the date when the forbearance measures were extended” rather than from the date of the exit of non-performance, which would support option a) above. This would mean in the above example that the non-performing probation start date would precede the exposure being classified as non-performing. Furthermore, it could mean that if the non-performing classification (T1) occurs >1 year from the date of the original forbearance measure (T0), that the non-performing probation period would have already reached its exit date and as at that date a non-performing exit criteria assessment would need to be made retrospectively.
Paragraph 256(b), Annex V, Part 2 of Commission Implementing Regulation (EU) No 680/2014 (as amended) states that:
[t]he classification as forborne exposure shall be discontinued where all of the following conditions are met: […] (b) a minimum two year period has passed from the date the forborne exposure was considered to be performing (‘probation period’).
Moreover, the subsequent paragraph 257 adds:
[w]here the conditions referred to in paragraph 256 are not met at the end of the probation period, the exposure shall continue to be identified as performing forborne under probation until all the conditions are met.
In the example above:
a) At T0, the exposure is classified as performing with forbearance measures in accordance to paragraph 261) and the probation period of 2 years begins
b) At T1 the exposure is classified as non-performing with forbearance measures (paragraph 262). This event interrupts the counting of the probation period in a) and
the counting of “cure period” starts (1 year as defined in paragraph 231).
c) At T2 the exposure is classified as performing with forbearance measures since all the conditions of paragraph 231 are satisfied. A new probation period of 2 years
always begins in this case.
Therefore, notwithstanding Q&A 2014_1018, the probation period for the classification of exposures with forbearance measures starts from the time at which forborne exposures
were considered performing. The classification of exposures as non-performing interrupts the counting of days for the probation period.