# Problem Loan Workout Plan: [Borrower name]

> Bank-side plan for a distressed borrower: situation summary, causes of
> distress, viability and debt sustainability, options analysis with a
> net present value (NPV) comparison of forbearance, restructuring,
> enforcement and loan sale, the recommended strategy and term sheet,
> forbearance, non-performing exposure (NPE) and default classification,
> provisioning and capital impact, collateral and enforcement plan,
> milestones, exit criteria and approval. Built for EU credit
> institutions applying EBA/GL/2018/06 (management of non-performing and
> forborne exposures) and Regulation (EU) No 575/2013 (CRR) Articles 47a,
> 47b, 47c and 178 as amended by Regulation (EU) 2024/1623, with US rows
> for the 2023 interagency policy statement on commercial real estate
> loan accommodations and workouts (SR 23-5). Replace every `[bracketed]`
> value and every row marked *Example*. This is a document format, not
> financial, legal, accounting or regulatory advice. Requirements are
> referenced by number: obtain the regulation, guideline or standard for
> the normative text.

<!--
Guidance: How to use this template
- One workout plan per borrower group (or per connected-client group),
  prepared by the special assets or workout unit once an exposure is
  transferred from the relationship team. It is the decision record for
  the strategy and the reference point for every later review.
- Fill sections 1 to 5 from facts first (exposure, causes, cash flow),
  then build the options in section 6 with the same discount rate and
  the same recovery assumptions for every option, and only then write
  the recommendation. A plan that starts from the preferred answer and
  back-fills the numbers is the most common review finding.
- Keep the regulatory classification (section 8) separate from the
  commercial decision. Forbearance, non-performing status and default
  follow their own tests; a good commercial outcome does not change them.
- Worked example: the fictional Fernhollow Bank (mid-sized EU credit
  institution, reporting under IFRS, EUR) and its fictional borrower
  Quillmoor Logistics GmbH (warehousing and contract logistics). Amounts
  are EUR thousand unless stated; all figures are invented and every
  derived number has been recomputed.
- Related documents: Credit Memo (`finance/credit-memo`), Annual Credit
  Review (`finance/annual-credit-review`), Collateral Valuation Review
  (`finance/collateral-valuation-review`), ECL Methodology
  (`finance/ecl-methodology`), Covenant Compliance Certificate
  (`finance/covenant-compliance-certificate`), Credit Rating Rationale
  (`finance/credit-rating-rationale`), Recovery Plan
  (`finance/recovery-plan`) and Risk Appetite Statement
  (`finance/risk-appetite-statement`).
-->

## Document control

<!-- Guidance: Record the workout case ID used in the bank's NPE system so the plan, the provisioning file and the board NPE report can be reconciled. Pitfall: leaving the plan in Draft while forbearance is already granted; approve before you sign the amendment. -->

| Field | Value |
|---|---|
| Document ID | [WO-YYYY-NNN] *Example:* WO-2026-014 |
| Borrower group | [Legal name, group ID] *Example:* Quillmoor Logistics GmbH, group G-40817 |
| Case owner (workout unit) | [@workout-manager] |
| Relationship manager (handover) | [@relationship-manager] |
| Version | [1.0] |
| Status | [Draft / In review / Approved / Superseded / Closed] |
| Owner | [@head-of-restructuring] |
| Approvers/reviewers | [@credit-committee], [@cro-delegate], [@legal], [@finance-provisioning] |
| Last updated | YYYY-MM-DD *Example:* 2026-10-20 |
| Classification | [Confidential: customer data, bank secrecy] |
| Currency and units | [EUR thousand] |
| Reference date of figures | YYYY-MM-DD *Example:* 2026-09-30 |
| Discount rate used for options | [Original effective interest rate (EIR)] *Example:* 5.0% p.a., annual compounding |
| Next scheduled review | YYYY-MM-DD *Example:* 2027-01-31 |

### Approvals

| Role | Name | Decision | Date | Conditions |
|---|---|---|---|---|
| Workout manager (proposer) | [@name] | [Proposed] | YYYY-MM-DD | [None] |
| Credit risk (second line) | [@name] | [Supports / Supports with conditions / Objects] | YYYY-MM-DD | [Conditions] |
| Credit committee or delegated authority | [@name] | [Approved / Declined / Deferred] | YYYY-MM-DD | [Conditions] |
| Finance (provisioning) | [@name] | [Noted] | YYYY-MM-DD | [Allowance booked in period] |

### Revision history

| Version | Date | Author | Change |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@author] | Initial draft after transfer to workout |
| 1.0 | YYYY-MM-DD | [@author] | Approved by [committee] |

## Contents

- [1. Situation summary](#1-situation-summary)
- [2. Legal and supervisory basis](#2-legal-and-supervisory-basis)
- [3. Exposure, security and status](#3-exposure-security-and-status)
- [4. Causes of distress](#4-causes-of-distress)
- [5. Viability and debt sustainability](#5-viability-and-debt-sustainability)
- [6. Options analysis](#6-options-analysis)
- [7. Recommended strategy and term sheet](#7-recommended-strategy-and-term-sheet)
- [8. Regulatory classification](#8-regulatory-classification)
- [9. Provisioning and capital impact](#9-provisioning-and-capital-impact)
- [10. Collateral and enforcement plan](#10-collateral-and-enforcement-plan)
- [11. Milestones, monitoring and exit criteria](#11-milestones-monitoring-and-exit-criteria)
- [12. Legal, accounting and conduct considerations](#12-legal-accounting-and-conduct-considerations)
- [13. Risks and fallback strategy](#13-risks-and-fallback-strategy)
- [14. Decision record](#14-decision-record)
- [15. Glossary and references](#15-glossary-and-references)
- [Standard and licence note](#standard-and-licence-note)

## 1. Situation summary

<!-- Guidance: One page a committee member can read in two minutes: who, how much, what went wrong, what you propose and what it costs compared with the alternatives. Write it last. Pitfall: describing the history at length and burying the recommendation. -->

State the borrower, the total exposure, the current status, the root cause in one sentence, the recommended strategy, the expected loss under that strategy and the expected loss under the best alternative. Committee members should be able to decide whether to read further from this section alone.

| Item | Value |
|---|---|
| Borrower and sector | [Name, NACE or NAICS code] *Example:* Quillmoor Logistics GmbH, warehousing (NACE 52.10) |
| Total on-balance exposure | [Amount] *Example:* 20,000 (term loan 18,000, revolving credit facility drawn 2,000) |
| Days past due at reference date | [Days] *Example:* 95 days on the term loan instalment due 2026-06-27 |
| Current classification | [Performing / Forborne performing / Non-performing / Defaulted] *Example:* Non-performing and defaulted (more than 90 days past due on a material amount) |
| Root cause | [One sentence] *Example:* Loss of the anchor customer contract in Q1 2026 cut revenue by about 30% while debt service stayed fixed |
| Recommended strategy | [Option ID and name] *Example:* OPT-B, restructuring into a sustainable A loan of 14,000 and a contingent B loan of 6,000 |
| Expected present value of recoveries | [Amount] *Example:* 15,927.6 (loss 4,072.4, 20.36% of exposure) |
| Best alternative | [Option ID] *Example:* OPT-A short-term forbearance, expected present value 14,907.7 (loss 5,092.3) |
| Decision requested | [Approve plan and term sheet, allowance, delegated authority for documentation] |

*Example* narrative: Quillmoor operates a single 42,000 square metre
warehouse that is mortgaged to Fernhollow Bank. Its main customer did not renew a five-year contract that ended in March 2026. Revenue fell from 11,800 to an annualised 8,300 and the borrower missed the June term loan instalment. Management has signed two smaller customers and the site is now 78% utilised, which supports a smaller debt. The workout unit recommends a restructuring that keeps the business running and preserves more value than enforcement or a loan sale.

## 2. Legal and supervisory basis

<!-- Guidance: List only the rules that drive this plan, by number. Mark each row with the jurisdiction and the date you checked it. Pitfall: citing a superseded text (the 2009 US CRE workout statement, or pre-CRR3 article wording). -->

The plan sits inside a framework of prudential rules, supervisory guidelines and accounting standards. Obtain each text and read it before you rely on the summary below; this table is a navigation aid, as of 2026-10, and does not replace the official text. Check local law and the consolidated version of each regulation.

| Ref | Source | Use in this plan | Status (as of 2026-10) |
|---|---|---|---|
| LB-01 | CRR Art. 47a "Non-performing exposures" | Test for NPE status and exit from it (section 8) | In force; consolidated text on EUR-Lex |
| LB-02 | CRR Art. 47b "Forbearance measures" | Identifies a concession as forbearance (section 8) | In force |
| LB-03 | CRR Art. 47c "Deduction for non-performing exposures" | Minimum loss coverage (prudential backstop) for NPEs originated after the Regulation (EU) 2019/630 cut-off (section 9) | In force; check the factor schedule |
| LB-04 | CRR Art. 178 "Default of an obligor or credit facility" | Default definition (unlikeliness to pay, past due more than 90 days on a material amount) | In force; materiality threshold set by Delegated Regulation (EU) 2018/171 |
| LB-05 | EBA/GL/2016/07 Guidelines on the application of the definition of default | Distressed restructuring test, probation before exit from default | Applies from 2021-01-01; amended version (EBA/GL/2026/05) applies from 2026-10-19; 1% threshold unchanged |
| LB-06 | EBA/GL/2018/06 Guidelines on management of non-performing and forborne exposures | NPE strategy, workout unit, forbearance viability (section 6), classification (section 7), collateral valuation (section 9) | Applies from 2019-12-31; NPE strategy required for institutions with a gross NPL ratio of 5% or above |
| LB-07 | ECB Guidance to banks on non-performing loans (2017-03-20) | Supervisory expectations for significant institutions | Applies to ECB-supervised banks |
| LB-08 | EBA/GL/2020/06 Guidelines on loan origination and monitoring, Section 8 | Monitoring, early warning and watch list before transfer | Applies from 2021-06-30 |
| LB-09 | IFRS 9 section 5.5 (impairment) and paragraph 5.4.3 (modification) | Stage 3 allowance and modification loss; names and paragraph numbers only | IFRS reporters |
| LB-10 | US: SR 23-5 Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts (2023-06-30) | US branch or US lender rows; supersedes the 2009 statement | Supervisory guidance |
| LB-11 | US: FASB ASC Topic 326 and ASU 2022-02 | CECL allowance; troubled debt restructuring accounting eliminated, modification disclosures for borrowers in financial difficulty | US GAAP reporters |
| LB-12 | National insolvency and enforcement law | Enforcement timeline and costs (section 10) | [Jurisdiction, check local law] |

## 3. Exposure, security and status

<!-- Guidance: Reconcile the exposure to the general ledger and to regulatory reporting on the same date. Include undrawn commitments and guarantees, because they become exposure if the borrower draws them in distress. Pitfall: forgetting connected clients that share the same cash flow. -->

Record every facility, the security package and the current arrears. The figures in this section are the baseline for every option in section 6, so they must match the ledger on the reference date.

| Facility ID | Type | Limit | Drawn | Rate | Maturity | Arrears | Status |
|---|---|---|---|---|---|---|---|
| FAC-001 *(Example)* | Amortising term loan | 18,000 | 18,000 | 5.0% fixed | 2032-09-30 | Instalment of 2026-06-27 unpaid | 95 days past due |
| FAC-002 *(Example)* | Revolving credit facility | 3,000 | 2,000 | 5.0% fixed | 2027-03-31 | None | Undrawn 1,000 frozen 2026-07-01 |
| **Total** | | **21,000** | **20,000** | | | | |

*Example* simplification: the drawn balances include capitalised arrears,
there are no fees, and the gross carrying amount equals the present value of the remaining contractual cash flows at the original EIR of 5.0%.

| Security ID | Asset or right | Ranking | Latest value | Date and basis | Reviewer |
|---|---|---|---|---|---|
| SEC-001 *(Example)* | First-ranking land charge over warehouse, [address] | 1st | 16,500 market value | 2026-09-15, external valuer, income approach | See `finance/collateral-valuation-review` CVR-2026-031 |
| SEC-002 *(Example)* | Assignment of rental and service receivables | 1st | Not valued separately | Notice served to customers | [@legal] |
| SEC-003 *(Example)* | Share pledge over Quillmoor Logistics GmbH | 1st | Nil in distress | Not relied on | [@legal] |

Loan to value on the reference date is 20,000 / 16,500 = 121.2%. The bank is therefore under-secured by 3,500 before costs of realisation, which drives the enforcement analysis in section 6.

## 4. Causes of distress

<!-- Guidance: Separate the trigger event from the underlying weakness. Questions: is the cause temporary or structural, borrower-specific or market-wide, and is management able and willing to fix it? Pitfall: accepting the borrower's explanation without evidence. -->

Describe what happened, in order, and classify each cause. The classification drives the choice between short-term and long-term measures: a temporary liquidity gap can justify a short-term measure, while a structural loss of earning power needs a lasting reduction in debt service. Support each statement with evidence such as management accounts, customer contracts, market data or the valuer's report.

| Cause ID | Description | Type | Evidence | Borrower response |
|---|---|---|---|---|
| CAU-01 *(Example)* | Anchor customer did not renew a contract worth 3,500 revenue a year | Structural, borrower-specific | Termination letter dated 2025-12-15 | Two new customers signed, combined 2,000 a year |
| CAU-02 *(Example)* | Energy and wage costs up 9% year on year | Market-wide, partly temporary | Management accounts H1 2026 | Solar roof lease signed, shift model changed |
| CAU-03 *(Example)* | Debt sized on peak revenue in 2021 | Structural, lender-side | Credit memo 2021-03 | Requires debt reduction |
| CAU-04 *(Example)* | Late detection: covenant breach Q1 2026 waived without plan | Process weakness at the bank | Watch-list log | Lessons learned raised (section 13) |

Assess management. A workout that depends on the same management that caused the problem needs either evidence that they can execute the plan or a condition that strengthens the team, such as a chief restructuring officer or a new finance director. Record the shareholders' position too: a shareholder who can inject equity, provide a guarantee or subordinate a loan changes the options available to the bank.

## 5. Viability and debt sustainability

<!-- Guidance: Answer one question: how much debt can this business service from its own cash flow, under prudent assumptions, within a reasonable period? Use the borrower's cash flow, not the collateral, for this test. Pitfall: using a projected recovery that the borrower has not yet achieved. -->

Forbearance is viable only when the bank can show, from objectively verifiable evidence, that the borrower can afford the new terms and that the plan reduces the exposure over time (EBA/GL/2018/06 section 6.1). Build a prudent cash flow available for debt service (CFADS) from the latest actuals and signed contracts, then size the sustainable debt from a minimum coverage ratio.

$$
\text{DSCR} = \frac{\text{CFADS}}{\text{Interest} + \text{Scheduled principal}}
$$

$$
\text{Sustainable debt} = \frac{\text{CFADS}}{\text{DSCR}_{\min}} \times \frac{1-(1+r)^{-n}}{r}
$$

where $r$ is the loan rate per period and $n$ the number of periods.

| Line | FY2025 actual | FY2026 annualised | Sustainable case | Note |
|---|---|---|---|---|
| Revenue *(Example)* | 11,800 | 8,300 | 10,300 | 8,300 plus 2,000 from new contracts |
| EBITDA *(Example)* | 4,900 | 2,300 | 3,450 | Margin 33.5% in sustainable case |
| Maintenance capex *(Example)* | (500) | (420) | (450) | Valuer's estimate for roof and docks |
| Cash taxes *(Example)* | (720) | (150) | (340) | |
| **CFADS** *(Example)* | **3,680** | **1,730** | **2,660** | 3,450 less 450 less 340 |

*Example* sizing: with a minimum DSCR of 1.10x, maximum annual debt
service is 2,660 / 1.10 = 2,418.2. The seven-year annuity factor at 5.0% is
5.7864, so sustainable debt is 2,418.2 x 5.7864 = 13,992.6, rounded to
14,000. An amortising 14,000 loan over seven years at 5.0% needs an annual payment of 2,419.5, which gives DSCR 2,660 / 2,419.5 = 1.10x. The full 20,000 repaid over the remaining six years would need 3,940.3 a year, a DSCR of 0.68x, so the existing debt is not sustainable without a reduction.

Run at least one downside case. In the *Example*, losing one of the two new customers would cut CFADS to about 2,100 and DSCR on the 14,000 loan to
0.87x. The plan therefore includes a cash sweep and an information
covenant (section 7) so the bank sees a deterioration within one quarter.

## 6. Options analysis

<!-- Guidance: Compare every realistic option on the same basis: expected cash flows, probability-weighted for re-default, discounted at the same rate, net of costs. Include doing nothing and enforcement even when you expect to reject them. Pitfall: comparing a probability-weighted restructuring with an undiscounted collateral value. -->

### 6.1 Forbearance and resolution measures considered

Consider short-term measures (up to two years, such as interest-only periods or reduced payments) and long-term measures (maturity extension, rate reduction, principal reduction, debt-for-equity, sale of assets, consolidation) and combinations of them. EBA/GL/2018/06 Annex 5 lists possible forbearance measures by name; describe your own choice in your own terms.

| Option ID | Description | Kind | Considered because | Rejected or retained |
|---|---|---|---|---|
| OPT-A *(Example)* | 12 months interest-only, then the full 20,000 amortised over six years | Short-term forbearance | Lowest immediate concession | Retained for comparison; does not restore sustainability |
| OPT-B *(Example)* | Split into A loan 14,000 (7-year annuity, 5.0%) and B loan 6,000 (non-interest-bearing, repayable in year 4 from the planned sale of a non-core land plot) | Long-term restructuring | Matches sustainable debt in section 5 | Recommended |
| OPT-C *(Example)* | Accelerate, enforce the land charge, sell the warehouse | Enforcement | Benchmark recovery | Retained for comparison |
| OPT-D *(Example)* | Sell the loan to a third-party investor at 62% of par | Loan sale | Market bid received 2026-10-05 | Retained for comparison |
| OPT-E *(Example)* | Debt-for-equity swap | Long-term restructuring | Shareholder unwilling; bank policy limits equity holdings | Rejected without valuation |

### 6.2 Valuation method

Discount every option at the original EIR so the comparison is consistent with the accounting measurement, and weight each path by its probability.

$$
\text{NPV}_{\text{option}} = \sum_{s} p_s \sum_{t=1}^{T} \frac{CF_{s,t}}{(1+r)^{t}} - \sum_{t} \frac{C_t}{(1+r)^{t}}
$$

where $p_s$ is the probability of path $s$ (for example performing or re-default), $CF_{s,t}$ the cash received in year $t$ on that path, $C_t$ the workout and legal costs, and $r$ the original EIR (5.0% in the
*Example*). The expected loss of the option is the exposure minus its NPV.

*Example* assumptions shared by all options:

- Enforcement recovery: market value 16,500 less a 20% forced-sale
  discount gives 13,200; selling costs of 5% of the gross price (660)
  leave 12,540 net, received two years after enforcement starts; legal
  costs of 300 are paid one year after it starts.
- Re-default path: the borrower pays one year of debt service and then
  defaults; the bank enforces in year 2 and receives 12,540 in year 3,
  with legal costs of 300 in year 2.
- Re-default probability: 60% for OPT-A (debt service stays at 0.68x
  DSCR), 15% for OPT-B (1.10x DSCR, cash sweep, new customer contracts).
- B loan in OPT-B: 50% probability that the land plot is sold and the
  6,000 is repaid in year 4.
- Re-default paths ignore the additional charge over the non-core land
  plot (TS-07); this is conservative and is stated so that reviewers do
  not count it twice.

### 6.3 Results

| Option | Path values (present value) | Expected NPV | Expected loss | Loss rate |
|---|---|---|---|---|
| OPT-A *(Example)* | Performing 20,000.0 (p 40%); re-default 11,512.8 (p 60%) | 14,907.7 | 5,092.3 | 25.46% |
| OPT-B *(Example)* | Performing 14,000.0 + 2,468.1 = 16,468.1 (p 85%); re-default 12,864.7 (p 15%) | 15,927.6 | 4,072.4 | 20.36% |
| OPT-C *(Example)* | 12,540 / 1.05^2 = 11,374.1, less 300 / 1.05 = 285.7 | 11,088.4 | 8,911.6 | 44.56% |
| OPT-D *(Example)* | 62% x 20,000 received now | 12,400.0 | 7,600.0 | 38.00% |

Check the arithmetic. OPT-A re-default path: one year of interest 1,000 discounted is 952.4; enforcement proceeds 12,540 / 1.05^3 = 10,832.5; legal costs 300 / 1.05^2 = 272.1; total 11,512.8. Its expected NPV is 0.40 x 20,000 + 0.60 x 11,512.8 = 14,907.7. OPT-B: the A loan annuity of 2,419.5 discounted over seven years equals 14,000.0; the B loan is worth 0.5 x 6,000 / 1.05^4 = 2,468.1; the re-default path is 2,419.5 / 1.05 = 2,304.3 plus 10,832.5 less 272.1, or 12,864.7; the expected NPV is 0.85 x 16,468.1 + 0.15 x 12,864.7 = 15,927.6.

```mermaid
flowchart TD
  A["Exposure 20,000 in default"] --> B{"Borrower viable at sustainable debt?"}
  B -- "No" --> C["Enforce OPT-C or sell OPT-D"]
  B -- "Yes" --> D{"Temporary or structural cause?"}
  D -- "Temporary" --> E["Short-term forbearance OPT-A"]
  D -- "Structural" --> F["Long-term restructuring OPT-B"]
  E --> G["Compare expected NPV of all options"]
  F --> G
  C --> G
  G --> H["Recommend highest expected NPV that passes viability"]
```

Do not stop at the highest number. Check that the recommended option also passes the viability test in section 5, that the bank can execute it (legal capacity, people, systems), and that it fits the NPE strategy and risk appetite. Record a sensitivity: in the *Example*, OPT-B stays ahead of OPT-A unless the OPT-B re-default probability rises above about 43% (16,468.1 less 3,603.4 x p equals 14,907.7 at p = 0.433), which is far above the downside case.

## 7. Recommended strategy and term sheet

<!-- Guidance: Write the terms precisely enough for legal to draft from them. Every concession should come with something for the bank: information, control, security or upside. Pitfall: granting concessions with no review right if the borrower recovers. -->

State the recommended option and why it is preferred, then the terms. The guideline expects the contract to let the bank review the measure if the borrower's situation improves and to attach consequences, such as more security, if the borrower fails to comply.

| Term ID | Term | *Example* |
|---|---|---|
| TS-01 | Facilities after restructuring | A loan 14,000 amortising over 7 years; B loan 6,000 non-interest-bearing, bullet in year 4 |
| TS-02 | Interest rate | A loan 5.0% fixed (unchanged); B loan 0% |
| TS-03 | Repayment | A loan annual annuity 2,419.5, paid quarterly in arrears |
| TS-04 | Cash sweep | 50% of excess cash flow above a 1,500 minimum cash balance prepays the A loan, then the B loan |
| TS-05 | B loan trigger | B loan due on sale of the non-core land plot or on refinancing, whichever comes first; 100% of net sale proceeds |
| TS-06 | Revolving facility | Cancelled; 2,000 drawn amount added to the A and B split |
| TS-07 | Security | Existing land charge and receivables assignment confirmed; additional charge over the non-core land plot |
| TS-08 | Financial covenants | DSCR at least 1.05x tested quarterly on a rolling 12-month basis |
| TS-09 | Information | Monthly management accounts within 20 days; quarterly customer and occupancy report |
| TS-10 | Governance | Chief restructuring officer appointed for 12 months, approved by the bank |
| TS-11 | Distributions | No dividends or shareholder loan repayments while any B loan is outstanding |
| TS-12 | Improvement clause | Bank may reprice or reinstate original amortisation if DSCR exceeds 1.50x for two consecutive quarters |
| TS-13 | Event of default | Breach of TS-08 or TS-09 not cured in 30 days; any new financial indebtedness |
| TS-14 | Fees and costs | Borrower bears legal and valuation costs; no restructuring fee |

## 8. Regulatory classification

<!-- Guidance: Apply each test separately and record the result with the evidence. The outcomes drive reporting (FINREP forbearance and NPE templates), the NPE backstop and the allowance. Pitfall: treating a restructuring as a "fresh start" that returns the loan to performing status immediately. -->

### 8.1 Forbearance

A measure is forbearance when the bank grants a concession to a borrower that is facing, or is about to face, financial difficulty (CRR Art. 47b). Assess financial difficulty from the borrower's own position, without regard to collateral or guarantees. Signs include being more than 30 days past due in the three months before the change, a rating downgrade, or inclusion on the watch list in that period. In the *Example*, all three apply and both OPT-A and OPT-B are forbearance.

### 8.2 Default and the distressed restructuring test

A distressed restructuring is an indication of unlikeliness to pay under CRR Art. 178. EBA/GL/2016/07 measures the diminished financial obligation (DO) and treats the obligor as defaulted when it exceeds a threshold of 1%:

$$
\text{DO} = \frac{\text{NPV}_0 - \text{NPV}_1}{\text{NPV}_0}
$$

where $\text{NPV}_0$ is the present value of contractual cash flows before the change and $\text{NPV}_1$ after it, both at the original EIR.

| Option | NPV0 | NPV1 | DO | Above 1%? |
|---|---|---|---|---|
| OPT-A *(Example)* | 20,000.0 | 20,000.0 | 0.00% | No (default status already applies through 95 days past due) |
| OPT-B *(Example)* | 20,000.0 | 14,000.0 + 6,000 / 1.05^4 = 18,936.2 | 5.32% | Yes |

### 8.3 Non-performing status, probation and exit

| Test | Basis | Result *(Example)* |
|---|---|---|
| Past due more than 90 days on a material amount | CRR Art. 178(1)(b), Delegated Regulation (EU) 2018/171 | Met on 2026-09-26 |
| Defaulted | CRR Art. 178 | Yes, past due and distressed restructuring |
| Non-performing | CRR Art. 47a | Yes |
| Forborne | CRR Art. 47b | Yes, from signing date |
| Earliest exit from non-performing | CRR Art. 47a(6) and EBA/GL/2018/06 section 7.3 | Not before one year after the later of the forbearance date and the NPE classification date, with no past-due amount and no concerns about full repayment |
| Forborne performing probation | CRR Art. 47a(7); FINREP Annex V | At least two years after reclassification to performing, with regular payments during at least half that period and no exposure to the obligor more than 30 days past due |
| Accounting stage | IFRS 9 section 5.5 | Stage 3 (credit-impaired); see `finance/ecl-methodology` |
| US GAAP (US branch row) | ASC 326; ASU 2022-02 | Collectively or individually assessed CECL allowance; modification disclosed as made to a borrower experiencing financial difficulty |

```mermaid
stateDiagram-v2
  [*] --> Performing
  Performing --> Defaulted: "More than 90 days past due"
  Defaulted --> ForborneNPE: "Restructuring signed"
  ForborneNPE --> ForborneNPE: "Cure period at least 1 year"
  ForborneNPE --> ForbornePerforming: "Exit criteria met"
  ForbornePerforming --> Performing: "Probation at least 2 years"
  ForbornePerforming --> ForborneNPE: "New forbearance or more than 30 days past due"
  ForborneNPE --> WrittenOff: "No reasonable expectation of recovery"
```

## 9. Provisioning and capital impact

<!-- Guidance: Show the allowance before and after the plan, the profit and loss effect and the capital effect, and agree the numbers with finance before committee. Pitfall: using the contractual restructured cash flows as the expected cash flows, which ignores re-default risk. -->

For a credit-impaired exposure the allowance equals the gross carrying amount less the present value of expected cash flows at the original EIR, weighted across plausible outcomes. When the contract is modified, IFRS 9 paragraph 5.4.3 adjusts the gross carrying amount to the present value of the modified contractual cash flows and recognises a modification loss; the allowance then covers the remaining expected shortfall. Follow the bank's accounting policy for presentation.

| Line | Before plan | After plan *(Example)* | Calculation |
|---|---|---|---|
| Gross carrying amount | 20,000.0 | 18,936.2 | Modified contractual cash flows at 5.0% |
| Modification loss | | 1,063.8 | 20,000.0 less 18,936.2 |
| Expected present value of recoveries | [From prior assessment] | 15,927.6 | OPT-B expected NPV |
| Loss allowance (stage 3) | [Prior allowance] | 3,008.6 | 18,936.2 less 15,927.6 |
| Total credit loss recognised to date | | 4,072.4 | 1,063.8 plus 3,008.6 |
| Net carrying amount | | 15,927.6 | |

Capital: under the standardised approach, the exposure net of specific credit risk adjustments moves to the defaulted exposure class (CRR Art. 127) with a risk weight that depends on the level of provisions. Under IRB, the defaulted exposure uses the bank's LGD in default and expected loss best estimate. Compute the CRR Art. 47c backstop from the exposure's origination date, collateral type and years in non-performing status, and deduct any shortfall between the required coverage and the actual coverage from Common Equity Tier 1. The *Example* loan was originated in March 2021 and is therefore in scope; finance records the Art. 47c calculation in the COREP NPE loss coverage template.

## 10. Collateral and enforcement plan

<!-- Guidance: Even when you recommend a restructuring, keep enforcement ready: it is the fallback and it sets the bank's negotiating position. Pitfall: an outdated valuation; NPE collateral needs a valuation at classification and at least annually. -->

EBA/GL/2018/06 section 9 expects the collateral of a non-performing exposure to be revalued individually when it is classified as non-performing and at least annually while it stays non-performing, with more frequent monitoring when the market falls. Link the latest review and record the realisation assumptions used in section 6.

| Item | *Example* |
|---|---|
| Latest valuation | 16,500 market value at 2026-09-15 (CVR-2026-031) |
| Next valuation due | 2027-09-15, or earlier on a market decline above the policy trigger |
| Forced-sale discount used | 20%, from the bank's back-tested recovery data for logistics property 2019 to 2025 |
| Selling costs | 5% of gross price |
| Time to cash | 24 months from enforcement start, [jurisdiction] court auction or receivership sale |
| Legal costs | 300 |
| Enforcement readiness | Land charge registered and enforceable; title search 2026-10-02; no prior-ranking claims except property taxes |
| Environmental or planning issues | None found in the 2026 valuation |

Prepare the enforcement file in parallel: demand letters, instructions to counsel, receivership options and the expected court timetable. Keep the borrower informed in writing of the bank's position, and respect any standstill agreed in the term sheet.

## 11. Milestones, monitoring and exit criteria

<!-- Guidance: Each milestone needs an owner, a date and an evidence item. Define in advance what happens if a milestone is missed. Pitfall: open-ended monitoring with no exit route. -->

| Milestone ID | Milestone | Owner | Due | Evidence | If missed |
|---|---|---|---|---|---|
| MS-01 *(Example)* | Committee approval of plan and term sheet | Workout manager | 2026-11-05 | Committee minute | Revert to OPT-C preparation |
| MS-02 *(Example)* | Restructuring agreement signed | Legal | 2026-12-15 | Signed amendment | Standstill ends, enforcement starts |
| MS-03 *(Example)* | Chief restructuring officer in place | Borrower | 2027-01-15 | Appointment letter | Event of default (TS-10) |
| MS-04 *(Example)* | First quarterly DSCR test at 1.05x or above | Borrower, monitored by bank | 2027-04-30 | Compliance certificate | Watch, cure period 30 days |
| MS-05 *(Example)* | Land plot marketed | Borrower | 2027-06-30 | Agent mandate | Bank appoints agent |
| MS-06 *(Example)* | Exit from non-performing tested | Credit risk | 2027-12-15 | Cure period assessment | Remains non-performing |
| MS-07 *(Example)* | Annual collateral revaluation | Valuation team | 2027-09-15 | New CVR | Escalate to credit risk |

```mermaid
gantt
  title Workout timeline (Example)
  dateFormat YYYY-MM-DD
  section Decision
  Committee approval        :m1, 2026-10-20, 2026-11-05
  Documentation and signing :m2, 2026-11-05, 2026-12-15
  section Execution
  CRO appointment           :m3, 2026-12-15, 2027-01-15
  Quarterly monitoring      :m4, 2027-01-01, 2027-12-31
  Land plot sale process    :m5, 2027-03-01, 2027-12-31
  section Classification
  Cure period               :m6, 2026-12-15, 2027-12-15
```

Exit criteria close the case: the exposure returns to the relationship team once it has exited non-performing status, completed the probation period and passes the bank's standard credit review; or the case closes on full repayment, on sale of the loan, or on completion of enforcement and write-off of any remaining balance.

## 12. Legal, accounting and conduct considerations

<!-- Guidance: List what could make the plan unenforceable or expose the bank to liability. Involve legal early. Pitfall: lender liability from taking control of the borrower's business decisions. -->

Review the plan with legal and finance before it goes to committee. Check the following and record the conclusion in the table.

| Area | Question | Conclusion *(Example)* |
|---|---|---|
| Insolvency law | Does the borrower's directors' duty to file for insolvency apply, and does the plan remove the filing trigger? | Legal opinion 2026-10-12: positive going-concern forecast with the plan; no filing obligation |
| Lender liability | Could the CRO condition or the information rights be seen as de facto control? | CRO reports to the borrower's board; bank has consent rights only |
| Guarantees and security | Does the amendment release or weaken any guarantee or security? | Guarantor consent obtained; security confirmations in the amendment |
| Syndicate or intercreditor | Are other lenders' consents needed? | Bilateral facility, none |
| Consumer protection | Does consumer law apply (natural person or sole trader)? | No; corporate borrower |
| Accounting | Is the change a derecognition event or a modification? | Modification; no derecognition (IFRS 9 paragraph 5.4.3 applied) |
| Tax | Does any debt reduction create taxable income for the borrower? | B loan is deferred, not forgiven; borrower's adviser confirmed |
| Sanctions and AML | Have counterparties to the land plot sale been screened? | To be screened before sale (MS-05) |

## 13. Risks and fallback strategy

<!-- Guidance: Name the risks that would make the plan fail and the action that follows. Include lessons for origination and monitoring so the bank learns from the case. Pitfall: a fallback that is only "reassess". -->

| Risk ID | Risk | Likelihood | Impact | Mitigation | Fallback trigger |
|---|---|---|---|---|---|
| RSK-01 *(Example)* | Loss of a new customer contract | Medium | DSCR falls to about 0.87x | Cash sweep, monthly reporting | DSCR below 1.05x for two quarters: move to OPT-C |
| RSK-02 *(Example)* | Land plot not sold by year 4 | Medium | B loan unpaid | Additional charge over plot | Enforce over plot |
| RSK-03 *(Example)* | Property market decline | Low to medium | Lower enforcement recovery | Annual revaluation, indexation quarterly | Value below 14,000: credit committee review |
| RSK-04 *(Example)* | Management does not cooperate | Low | Plan fails | CRO condition | Breach of TS-10: enforcement |

Lessons for the bank: the 2021 credit memo sized debt on peak revenue with a single-customer concentration, and the Q1 2026 covenant waiver was granted without a remediation plan. Feed both into the origination policy and the early-warning indicators reviewed in Annual Credit Review (`finance/annual-credit-review`).

## 14. Decision record

<!-- Guidance: Record the decision, the conditions and the delegated authority used. Keep dissent visible. Pitfall: approval conditions that nobody tracks. -->

| Item | Entry |
|---|---|
| Decision | [Approved / Declined / Deferred] |
| Authority level used | [Credit committee / Board risk committee] |
| Conditions | [List] *Example:* signed CRO appointment before first drawdown under the amendment |
| Dissenting views | [Name and summary] |
| Allowance approved | [Amount] *Example:* 3,008.6 plus modification loss 1,063.8 |
| Reporting | [NPE report, FINREP forbearance flag, board NPE strategy update] |
| Next review | YYYY-MM-DD |

## 15. Glossary and references

<!-- Guidance: Define every abbreviation used in the plan. Pitfall: mixing accounting and prudential terms (stage 3 and non-performing are close but not identical). -->

### 15.1 Glossary

| Term | Meaning in this plan |
|---|---|
| CFADS | Cash flow available for debt service |
| Cure period | Minimum period an exposure stays non-performing after forbearance before it can exit |
| DO | Diminished financial obligation, the loss in present value caused by a restructuring |
| DSCR | Debt service coverage ratio |
| EIR | Effective interest rate at origination |
| Forbearance | A concession to a borrower in financial difficulty |
| LTV | Loan to value |
| NPE | Non-performing exposure |
| NPV | Net present value |
| Probation period | Period during which a forborne performing exposure is monitored before the flag is removed |
| Stage 3 | Credit-impaired category under the bank's IFRS 9 methodology |

### 15.2 References

| Reference | Version or date checked | Use |
|---|---|---|
| Regulation (EU) No 575/2013 (CRR), Arts 47a, 47b, 47c, 127, 178, as amended by Regulation (EU) 2024/1623 | Consolidated version listed by the EBA Interactive Single Rulebook, checked 2026-10-25 | Prudential definitions |
| Commission Delegated Regulation (EU) 2018/171 | Checked by name 2026-10-25 | Materiality threshold for past-due obligations |
| EBA/GL/2016/07 Guidelines on the application of the definition of default | Applies from 2021-01-01; amended by EBA/GL/2026/05 from 2026-10-19 | Distressed restructuring, probation |
| EBA/GL/2018/06 Guidelines on management of non-performing and forborne exposures | Final report 2018-10-31, applies 2019-12-31 | NPE strategy, forbearance, collateral |
| EBA/GL/2020/06 Guidelines on loan origination and monitoring | Final report 2020-05-29, applies 2021-06-30 | Monitoring before transfer |
| ECB Guidance to banks on non-performing loans | 2017-03-20 | Supervisory expectations |
| Federal Reserve SR 23-5 (with FDIC, NCUA, OCC) | 2023-06-30 | US CRE accommodations and workouts |
| IFRS 9 Financial Instruments (IFRS Foundation) | Names and paragraph numbers only | Stage 3, modification |
| FASB ASC Topic 326 and ASU 2022-02 | Names and numbers only | US GAAP allowance and modification disclosures |

## Standard and licence note

Based on Regulation (EU) No 575/2013 as amended, Delegated Regulation (EU) 2018/171 and the EBA Guidelines EBA/GL/2016/07, EBA/GL/2018/06 and EBA/GL/2020/06 (EBA material may be reproduced with acknowledgement of the source; no text is reproduced here), the ECB Guidance to banks on non-performing loans, and the US Federal Reserve SR 23-5 interagency policy statement (a US government work). IFRS 9 and FASB ASC Topic 326 are cited by name and paragraph or topic number only; IFRS is a trade mark of the IFRS Foundation, and this template is not affiliated with or endorsed by the IFRS Foundation, the FASB, the EBA or the ECB. The structure, wording, worked example and all figures are original; Fernhollow Bank and Quillmoor Logistics GmbH are fictional. Check the current official and consolidated versions of every cited text before use. Template licence: MIT.