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As of January 1, 2021, new rules will come into force provided for by the European Banking Authority (EBA), the European Banking Authority, for the definition of default that European banks, and therefore also Italian banks, will have to apply for their clients’ positions. In essence, these are the criteria, stricter than current Italian regulations, on the basis of which banks can establish that a customer, who has a checking account, can no longer pay his debt.
In recent days, the newspapers have talked about these new rules especially in relation to the so-called “red accounts”, that is, the situation in which a current account holder finds himself in debt with the bank. According to some interpretations, in this case the bank would block all automatic debits, the so-called direct debits, such as those from credit cards or household utility bills, with the result that the account holder is declared insolvent against the credit providers. services. . Some business associations, such as Unimpresa, have reported how this would pose great problems for companies with already reduced liquidity due to the crisis caused by the coronavirus pandemic.
What the new ABE regulations provide
The new definition of default provided for by the European Regulation on “prudential requirements for credit institutions and investment firms” (Article 178 of EU Regulation No. 575/2013) refers to the way in which “credit institutions and investment firms”, and by both banks even evaluate their clients “on a prudential basis”, that is, deciding when they cannot repay what the bank has advanced to them. They are commonly called “delinquent loans” in English. bad loan (NPL) or unlikely to pay, that is, those that the bank considers probable breaches by the customer.
The ABE regulation establishes the criteria according to which a bank customer debt, and therefore also an “overdraft” in a current account, can be valued as non-recoverable credit and therefore the customer defined as default. In practice, the rule establishes that the debtor is considered in default if it exceeds 90 days (in some cases, for example, to governments, 180 days) in the payment of a “material obligation” and if the bank considers it unlikely that the debtor will be able to pay his debt.
The second condition is already provided for by Italian regulations and, therefore, nothing changes for the customer and the bank as of January 1. Regarding the specific conditions of default The EBA establishes that a 90-day overdue debt should be considered “relevant” when the value of the delinquency exceeds these two thresholds: the absolute, that is, 100 euros for individuals and 500 euros for companies and the relative one, which is 1 percent. percent of total exposure to the bank.
In summary, in the case of a current account holder, the bank can judge him in default if he is “in the red” for at least 100 euros (500 for companies) for 90 consecutive days and if, at the same time, he is “overdrawn “is greater than 1 percent of the total credit granted by the bank to this same customer. This second “relative threshold” means that, for example, if the bank has granted the customer a loan of 100,000 euros, consider it in default an overdraft of 100 euros over 90 days will not be enough, but this debt must be at least 1 percent of 100,000 euros, that is, 1,000 euros: this is because it is clear that if the bank has granted a loan for that amount will have made all the checks who had guaranteed, in the risk margin, that the client could pay the debt.
With the declaration of default the bank can (but is not obliged) to inform the client to the Central Credit Registry (CR), managed by the Bank of Italy, which is a file of information on the debts of households and companies with the banking and financial system . However, the Bank of Italy itself specifies that “with regard to CR reports, it must be reiterated that the new definition of default does not substantially modify the underlying criteria.” Specifically, if implemented, reporting to the CR is an act that prevents citizens or companies from accessing credit, even for small loans and installments, qualifying it, in fact, as a “bad payer.”
EBA regulations also establish that it will no longer be possible, as in the past, to compensate the overdue debt with other lines of credit that the client may have with the bank and that the client will be considered in default also in any other relationship with the bank.
What the experts say
The new rules are certainly more stringent than the law in force in Italy, mainly because they establish precise thresholds from which the bank can (but does not necessarily have to) consider the customer in default and consequently report it to the Central Credit Registry. However, some analysts have observed that, although this requires greater attention from clients to avoid “going into the red” in the checking account, in practice it is unlikely that the rule will lead to the blocking of automatic payments to unless the bank is forced to do so. intervene in front of clients who consider truly incapable of paying the debt, which could also be done with the current national regulations.
The same analysts suggest that although banks have to assess the overdraft more rigidly, they will hardly resort to the statement of accounts. default for small figures. It’s also not that common for a checking account overdraft to stay that way for 90 consecutive days. To give a concrete example, it can happen that a client “exceeds” the one hundred euros of debt in current account, but normally the debt is filled with the arrival of salary or pension or, in the case of companies, payments. The 90-day count is reset to zero and you will start over, with three months to pay, after a new excess over the threshold.
Also, banks are likely to advise clients to open a line of credit in their checking account. The line of credit is a sum of money that the bank makes available to the client beyond its availability and on which market interest rates are applied. Opening a credit line, or renegotiating the amount of an existing one, would allow the client not to fall into the consequences of the new EBA regulations and not have to pay interest rates on the overdraft, which are generally very high.
Of course, much is left to the discretion of the bank, which can decide to assess on a case-by-case basis, also on the basis of direct knowledge of the customer. December 5th The sun 24 hours had written that BNL, the Banca Nazionale del Lavoro, of the French group BNP Paribas, which has around 3 million clients in Italy, had sent an informative notice to its clients in which it had informed them that, in accordance with the new rules established by the EBA, as of December 7 the bank would have modified some rules that regulate overdrafts and direct debits.
BNL’s communication, which has opted for a more rigid line than other banks, explained that on the day of the due date of the payment by direct debit, the institution would check the coverage in the checking account in the morning and, if available . not enough, he would have sent a notification to the client, who would have had to secure coverage before 3 pm, on pain of blocking the payment. BNL’s choice of greater rigidity in the application of the European standard is probably due to the fact that the group is French-owned and in France, as in Anglo-Saxon countries, “discovered” is a much less frequent practice than Italy is already regulated more strictly by national laws.
What the Bank of Italy says
On December 28, the Bank of Italy issued a press release to clarify the consequences of the new regulations, with the premise that on the subject “the information available on the Internet or reported by the press provides an unclear picture”. The Bank of Italy clarified that the new criteria refer “exclusively to the way in which banks and financial intermediaries must classify clients for prudential purposes, that is, to calculate the mandatory minimum capital requirements for banks and intermediaries. financial “. In other words, the banks ‘evaluation of their clients’ uncovered positions will be carried out by banks based on their ability to guarantee coverage of these debts: in fact, European regulations establish that banks must reserve capital (which is a cost to the bank) to cover impaired loans.
However, the Bank of Italy is very clear in explaining that the new legislation on the definition of default “does not introduce a prohibition to allow excesses”, that is, the possibility of “turning red”. In fact, he explains, “banks, respecting their politics, you can allow customers to use the account that represent an extra cost beyond the availability available in the account or, in the case of a line of credit, beyond the credit limit.
In addition, the Bank of Italy informs that it has sent a communication to the banks in which it invites them to “work to ensure full awareness on the part of customers about the entry into force of the new rules and the consequences they may have on the dynamics of contractual relationships “. . In his communication, he also asks the banks “to adapt the organizational and control safeguards to the new discipline, so that customers have products fully suited to their real economic and financial situation and their specific needs.”
Finally, the Bank of Italy invites banks to pay special attention to «sensitize those subjects who could present a higher risk of classification in default after the entry into force of the new definition “and in these cases, it recommends” contacting customers to evaluate the most appropriate solutions to avoid reclassification of exposures “.
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