1. Should we consider a loan/exposure for which the contractual terms and conditions have been modified to help a debtor to face financial difficulties as forborne if there is no loss for the bank?
2. Is there any materiality threshold for the loss to consider forbearance?
3. To calculate the loss (i) should the bank compare the previous terms and conditions with the new terms and conditions or (ii) should the bank compare the new terms and conditions with the current terms and conditions for a debtor with a similar risk profile?

According to the current practices of one of our supervised institution forborne exposures are linked to the default downgrade decisions:

• changes in the rating of a given contract trigger a default – and consequently qualification of forborne exposures – provided that the restructuration creates a significant economic loss;
• if the economic loss resulting from the changes is not material or if there is no economic loss, then the institution considers that the changes correspond to a commercial renegotiation.
• If the new terms and conditions are in line with the new market conditions the bank doesn’t calculate the economic loss in comparison with the previous terms and conditions. Only in case of terms and conditions that have a haircut compared to the current market conditions are judged as a concession, if material.

As a result of the above practices, the institution does not flag any performing exposure as forborne (apart from those in probation period).

The modification of the previous terms and conditions of a contract that the debtor is considered unable to comply with due to his financial difficulties should in all cases lead to a classification of an exposure as forborne regardless of the materiality of the loss or even if there is no loss at all (paragraphs 163, 164 and 172 of Part 2 of Annex V to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting)).

Against this background, the ITS on Supervisory Reporting does not specify any method to calculate the loss.

Paragraph 165 of Part 2 of Annex V provides some, non-conclusive examples of concession. In line with that, even a modification at market rates can be considered as forbearance, provided that the debtor is in financial difficulties.