The EACB welcomes the opportunity to comment on the EBA’s draft Guidelines on the definition of default under Article 178 of the CRR and appreciates the efforts to clarify and reassess the framework. However, the draft text does not sufficiently promote proactive, preventive and meaningful debt restructuring, as stressed in our answer. The proposed approach remains overly rigid, discouraging institutions from engaging in restructuring activities and thereby affecting economic recovery.
We believe that meaningful improvements can be achieved by revising the 1% NPV threshold, harmonising the definitions of NPE to bring it closer to the definition of default within the CRR, clarifying the treatment of forbearance and distressed restructuring.
These measures, in our view, would enhance regulatory consistency, support viable debt restructuring, and strengthen financial stability. Moreover, they would prevent inappropriate default classifications and reduce unnecessary manual reviews, especially in the case of low exposures amounts. On the latter, this is particularly critical because they occur to NPV changes that breach the 1% NPV limit more frequently, as there is no materiality threshold applied when assessing the NPV limit. To remedy the effects of the fixed NPV 1% limit and incorrect default classification resulting from it, we envisage two potential remedial actions: a) increase the NPV limit to 2%; or b) apply at least a materiality threshold of EUR 500 to the NPV change of an exposure.
Finally, we have stressed the importance of clarifying specific paragraphs to avoid any potential legal uncertainty or misinterpretation.