Trasparency
New definition of default
The Mediobanca Group applies the new EU regulations on classifying counterparties which fail to meet their obligation versus the Bank (i.e. in “default”) compiled by the European Banking Authority (EBA). Since 1 January 2021 these regulations apply compulsorily to the entire EU banking system.
The new rules, known as the “New definition of default”, establish stricter criteria for classifying positions in default than the ones previously adopted, with the objective of harmonizing the regulations between EU member states.
New rules
Knowledge of the principal changes made to the new regulations on classifying positions as being in default is fundamental in order to manage banking relations with intentionality.
Materiality thresholds
The Bank is required to classify a client as defaulting if the following materiality thresholds are exceeded for more than 90 consecutive days:
- Private banking clients and SMEs: arrears amounting to €100 and over and above 1% of the client’s total exposure;
- Other companies: arrears amounting to €500 and over and above 1% of the client’s total exposure.
Whereas for products with repayment by instalments, the definition of default previously adopted referred to the number of months elapsed since the earliest unpaid instalment, the new definition does not depend on the number of unpaid instalments but is based rather on the continuing presence of a given amount in arrears for a period of at least 90 days.
It is also the Bank’s duty to report clients as in default if they are unlikely to pay back their loan, even if they do not have amounts in arrears at the 90-day mark.
Offset
The new regulations do not allow amounts overdue to be offset against each other: in other words, the Bank is required to classify the client as in default even if it has funds available on other credit lines undrawn.
Cure period
The client remains in default for at least 90 days (known as the "cure period") from when it settles its arrears versus the Bank. Longer periods of at least 12 months shall be applied to positions in default for which concessions have been granted (i.e. which have been classified as forborne). Once this period is over, if the conditions which gave rise to the client being classified as in default no longer apply, the position returns to being classified as performing.
Impact on reporting to central risks database
The new rules on default have only a very limited impact on the client’s representation in the central risks database made available by the Bank of Italy to intermediaries to assist them in making their assessments with reference to "credit standing".
Some suggestions:
- Banking and lending relations must be managed with intentionalityin order to avoid breaches or arrears which could make it more difficult for the client to obtain credit or be granted new loans and which could have repercussions for the client’s joint account holders;
- Careful attention must be made to the need for deadlines for payment obligations to be made in a timely manner.
- Check the balance of your current accounts and credit cards on a regular basis, so that, when an instalment on your loan is debited, you do not go overdrawn on the account or card with which the loan is paired.
- If you miss a deadline in meeting your payment, make sure you settle the amount outstanding as soon as possible, to prevent other instalments going past due as well, and the situation of arrears continuing that will mean your account eventually has to be classified as in default.
- Remember that we’re here to assist you at any time in identifying the solutions which are best suited to your individual needs.
To find out more
You can consult the guides and documents drawn up by the Italian Banking Association ABI:
- For individuals: Guida tecnica alle nuove regole europee in materia di default and Prestiti - Più attenzione a scadenze e pagamenti
- For companies: Guida semplice alle nuove regole europee in materia di default
The reference regulations consist of: EBA/GL/2016/07 (Guidelines on the application of the definition of default under Article 178 of Regulation (EU) No. 575/2013); Commission Delegated Regulation (EU) 2018/171 of the European Parliament and of the Council of 19 October 2017; Regulation (EU) 2018/1845 of the European Central Bank of 21 November 2018; Bank of Italy, “Application of the definition of default under Article 178 of Regulation (EU) No. 575/2013, and adaptation of the definition of non-performing credit exposures”, 15 October 2020.