Response to consultation on draft Regulatory Technical Standards on materiality threshold of credit obligation past due

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Q2. Do you agree with the proposed maximum levels of the thresholds?

The relative threshold should be placed at a little higher level for some kinds of credit exposition. In Poland we have the experience with credits for consumer or mortgage purpose and these credits are denominated in foreign currency. The problem of changes in the exchange rate may cause that thanks to the application of bad exchange rate may have the impact on treating the credit as past due, but this example should be treated as clear “technical” reason of past due.

Q3. How much time is necessary to implement the threshold set by the competent authority according to this proposed draft RTS? Given current practices, what is the scope of work required to achieve compliance?

We have the experience with the threshold in Polish regulation and in the practice of Polish banks. That is the reason we are convinced the time needed for implementation is not long. This proposed solution is favorable for banking society and this reason why we are in favour to implement short time.
However, we can imagine that banks using the IRB model will need more time to implement the new approach to the past due to their internal model. It is necessary to have more time to rebuild these models.
Due to the fact that implementation process will require at least the following:
- historical data adjustment to allow models’ calibration/validation
- new threshold implementation in the systems
- validation and recalibration of the models
- internal and external governance processes
- final implementation of the models in the systems and decision processes.
We express our opinion that full implementation requires not less than 2 years and in the case of institutions with high number of the risk models (PD, EAD, LGD), the time required may read more than 3 – 4 years after inclusion of business-as-usual activities and other changes on the horizon like deployment of IFRS 9.
The additional problem is how to calculate the period necessary for implementation of past due rule. In one solution the starting point can be the date of the adoption of this technical standard and in the second one the date of later setting the threshold by competent national authorities.

Q4. Do you agree with the assessment of costs and benefits of these proposed draft RTS?

In general, the adjustments to data sets, the re-calibration of risk parameters and the implementation of model changes will mean new burden for banks. These costs would be exacerbated if the change is intended to be applied retrospectively and, in many cases, it could be unfeasible due to lack of necessary data.

Q5. What is the expected impact of these proposed draft RTS?

The standard will generate the additional costs for banks in following areas:
­- Data systems and IT adaptations.
­- Human resources devoted to the change.
­- Increased risk weighted assets: Option 1 would be much more punitive as it would not only treat as true defaults debts which are only technical defaults, but it would also push up the value of risk parameters thus inflating the risk weighted assets of the healthy portfolio.

The draft should not have big impact on credit strategy of banks.

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Name of organisation

Polish Bank Association