Credit Risk Analysis of Unsecured Retail Lending
This section further specifies the requirements to assess the creditworthiness of the borrower referred to in Article 8 of Directive 2008/48/EC. In relation to loan agreements subject to national laws transposing that Directive institutions and creditors should apply, in addition to provisions set out in Section 5.2.1, provisions set out in this section.
Where necessary, in particular in cases of borrowers who are self-employed or have seasonal or other irregular income, institutions and creditors should make reasonable enquiries and take reasonable steps to assess and verify the source of repayment capacity.
Institutions and creditors should ensure that the borrower’s ability to meet obligations under the loan agreement is not based on an expected significant increase in the borrower’s income, unless the documentation provides sufficient evidence.
As part of the creditworthiness assessment, institutions and creditors, if applicable, should carry out sensitivity analyses to reflect potential negative events specific to the type of loan that may occur in the future. When relevant, institutions and creditors should also consider the implication of foreign currency exchange rate risk, as provided in paragraph 108.
- EBA, Guidelines on loan origination and monitoring EBA/GL/2020/06