Promise-to-pay as forbearance measure
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As part of a Mortgage model IMI, the ECB has commented that they consider promises-to-pay (PtP) and payment plans agreed with the client during the collection process as forbearance measures.
These are agreements before the client reaches 90DPD for them to get back up to speed on their missed payments (e.g., missed 1 installment, will pay it in three small payments over 90 days). In the meantime, the DPD counter keeps going (not paused, not reset), so if/when the client reaches 90DPD, they default anyway. But considering the promise-to-pay as forbearance could then also mean that an extended probation period apply and would increase the stage 2 stock quite a lot.
Has anyone seen similar feedback from the ECB? Or if banks consider PtP a forbearance measure?
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I have seen that and a bit of controversy around it
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Promise-to-pay on its own is not a concession… agreeing to pause the contractual dunning process & associated late-fees, however, can be easily seen as one — materiality concerns should apply here, though - banks could easily put an optional clause of ‘dunning-process & collecting/waiving late fees at sole discretion of the bank’ into the contract at which point there no longer is a concession-event vs pre-agreed optionality
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Financial difficulties is where you also would want to differentiate: is a delay of 2-3 months, below 90dpd, credible auto-cure by the end really a situation of financial difficulties? Here it is easy to define materiality thresholds that pass the EBA guidelines
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JST/ Inspectors I speak with are typically a bit more concerned with banks being 'laissez faire' with this, than with the actual risk. I have seen cases where the bank had no policy or controls around this and then it resulted in a finding on potential underestimation of forbearance / S2 -- proper policy writing and guidance to relationship managers should close the perceived governance gap
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There is a clear understanding of bad incentives: if you punish banks for agreeing with clients in this way by enforcing a cure period that is worse than 'do nothing', it clearly creates a conflict, that should be put on the table when arguing against an overly conservative view. But careful that not all 'silent acceptance' of delays are then afterwards equated with active concessions
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