BPCE_PILLAR_III_2017

5 CREDIT RISK

Organization of credit risk management

Forbearance, performing and non-performing exposures Institutionswere asked to identify the concepts of “forbearance”and “non-performingexposure” (NPE) for the purposes of the European BankingAuthority(EBA) technicalstandardspublishedon October 21, 2013. These standardsoutline the additionalfinancialdisclosuresthat must be includedwith FINREP financialreportingas of December 31, 2014.

decision to move a loan out of the “forborne” category, is subject to probationary periods. Forced restructuring, overindebtedness proceedings, or any kind of default as defined by the Group standard, which involves a forbearancemeasure as previouslydefined, results in classificationas a non-performing forborne exposure. Based on the new deliberation procedure that began in 2016, the differences in standards between NPEs and Basel default call for further analysis. With the discontinuationof the 180-day option for exposures secured by real estate, the concepts of default and NPEs under accounting and regulatory approaches are converging. The Basel Committee’s work on this subject (Prudential treatment of problem assets – definitions of non-performing exposures and forbearance – a consultation that began in April 2016) and similar work by the ECB (Consultation on guidance to banks on non-performingloans, launched in September 2016) are also paving the wayfor the convergenceof these concepts. The discontinuationof the 180-day option for exposures secured by real estate, the Basel Committeeinternalcontrolguidelinesof April 4, 2017 regarding the prudential treatment of non-performing exposures and forbearance definitions, EBA guidelines published in September 2016 on the applicationof the definitionof default under Article 178 of (EU) regulation No. 575/2013, as well as the publication by the ECB in March 2017 of guidelines for non-performingloans are paving the way for the convergenceof the concepts of non-performing exposures and Basel default. Identification of retail customer forbearance exposures is now automated. In addition, there is a guide for using expert opinion to identify forbearanceexposures, particularlyfor short-, medium-, and long-term loansto non-retailcounterparties. Disclosures on “forbearance, performing and non-performing exposures”are being added to those already provided on default and impairment.

They aim to clarify the concepts of “forbearance” and “non-performingexposure” as set out in the ImplementingTechnical Standards (ITS) produced by the EBA, and indicate that such disclosures are neither accounting nor regulatory innature. Forbearance results from the combination of a concession and financial hardship. Forbearance may relate to performing or non-performingloans. Two types of concessions can be made when restructuring a loan (performingforborne exposures): a contractual modification,which is formalized through a rider or ● waiver; refinancing, which is formalized by setting up a new loan ● agreementat the same time as or in the seven days preceding the full or partial repayment of another loan agreement. Meanwhile, financial hardships are observed when: a paymenthas been past due for over 30 days (excludingpayments ● past due for technicalreasons);or an overdraft authorization has been exceeded for more than 60 ● days in the three months preceding the rider or refinancing operation; the loanis assignedan at-risk rating. ● The decision to downgrade a loan from the “performing forborne exposure” to the “non-performing forborne exposure” category is subject to a different set of rules than the rules for default (new concession or payment more than 30 days past due) and, like the

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Risk Report Pillar III 2017