The 178th article of the Regulation (EU) n. 575/2013 considers a default as occurred when one of the undermentioned condition is verified:
- probable default: the institution judges improbable that the debtor may fully comply to its credit obligation without resorting to actions such as enforcement of guarantees.
- arrear: the debtor is in in arrear of over 90 days on a credit obligation.
The new guidelines, also known as “New Definition of Default”, establish criteria which are more rigorous compared to those implemented in precedence. Their objective is to harmonize current rules among EU Country members, so to uniform the behavior of the respective credit institutions as far as the customer classification in default is concerned.
The new definition of default concerns Creditis Servizi Finanziari S.p.A as follows:
- positions overdue for more than 90 days (also known as deteriorated overdue), above one of the materiality thresholds (at least):
- overdue amount greater than or equal to € 100,00
- overdue amount greater than or equal to 1% of the total customer exposure
- unlikely to pay;
- litigations;
- exposures toward a client who owes at least another exposure in default or who owes a total amount of past due that is above the materiality thresholds described above.
Specifically, those credit exposures for which the firm considers improbable that the debtor may fully comply with the loan reimbursement are classified as probable default. This is due to specific events forecasting a possible worsening of the risk exposure, such as the repeated non-compliance with the payment of the instalment reimbursement of the loan.
The positions on which either the forfeiture of the benefit has been pleaded, or on which the formal notice has been sent, or all other positions which may have presented events addressing the customer’s incapacity to fulfil its obligations are classified as Sufferings.
2 • Exit from Default
Once classified as default, the position will remain in such state for the period mentioned as follows (c.d cure period), starting from the moment in which the customer fixes his or her position by paying the overdue amounts, if the reimbursement deadlines are punctually respected throughout the cure period.
- 12 months in case of facilitation (re-financing or deadline postponements). Determined by a pre-existing incapacity to respect the original reimbursement plan;
- 3 months in other cases.
During said period, the client must regularly honour its debts, hence avoiding other arrear situations and further prejudicing events, which would have as consequence an extension in the permanence months as reported above.
Default reasons such as the communication of the forfeiture of the benefit of the term or bankruptcy (judicial iquidation) do not include any exit from default for their own nature.
3 • How to handle better the relation with Creditis
Given what reported above, it is fundamental to punctually respect the payment deadlines provided for in the contract, so to avoid that Creditis Servizi Finanziari SpA should proceed to classify the default exposition and to start credit recollection actions.
1 EBA/GL/2016/07 Guidelines on the application of the definition of default under Article 178 of Regulation (EU) No 575/2013
EBA/RTS/2016/06 Regulatory Technical Standards on the materiality threshold for credit obligations past due under Article 178 of Regulation (EU) No 575/2013
2 Regulation (EU) N. 575/2013 art. 178. 26th of June 2013