Deferral of payment on the basis of a bilateral agreement

• Question ID: 2018/0004
• Date of publication: 24/01/2018
• Subject matter: Loans price and other conditions, Renegotiated instruments
• AnaCredit Manual: Part II
• Data attribute: Status of forbearance and renegotiation, Accrued interest

Question

If a creditor and a debtor have a bilateral agreement whereby payments of both the principal and the interest are deferred until the next month (or later) and the debtor only pays a fee in the month in question, how should this be reflected in the AnaCredit reporting framework?

Answer

Generally, the deferral of payment as a result of a bilateral agreement between the creditor and the debtor constitutes a renegotiation (i.e. a change in financial conditions). Please note that, in accordance with Part II of the AnaCredit Manual (see page 128), a renegotiation entails a contractual change where the debtor is actively involved.

This has several implications for AnaCredit reporting, including the following:

First, since the bilateral agreement between the debtor and the creditor changes the financial conditions of the initial contract, and thus changes the instrument, this modification has to be reflected in the data attribute “status of forbearance and renegotiation”.

In the same vein, the “date of the forbearance and renegotiation status” data attribute has to capture the date on which the bilateral agreement becomes effective. If, in the following month, the parties agree to defer the payment obligation for a second time (again, in return for a fee), the “date of the forbearance and renegotiation status” attribute has to be updated to reflect the new agreement.

Second, the change to the interest payment date means that the accrued interest will not become due until a later date. Subsequently, an amount is likely to be reported as “accrued interest” for the reference reporting date for which the interest payment has been deferred in line with the bilateral agreement. It should be noted that interest will, in this case, be accrued over a longer period of time as a result of the deferral of payment^[1].

Third, if the agreed fee is not paid by the reference date, it is added to the outstanding nominal amount (as well as the arrears for the instrument if it has also become due).

Furthermore, all other aspects of the bilateral agreement that affect the instrument have to be reported accordingly. For example, if, in the period concerned, the instrument is interest-only (in which case, the end date of that period has to be reported) and if the end date coincides with the payment date prior to deferral, the end date of the interest-only period has to be adjusted if the bilateral agreement also affects the end date.

However, where an instrument is not interest-only, simply deferring payment of the principal and the interest to a future period (e.g. the following month) does not affect per se the “end date of interest-only period” data attribute.

Similarly, deferring payment of both the principal and the interest to a future period does not mean that the instrument becomes past due and a positive amount has to be reported for “arrears”.