RECOMMENDATION T

30 Sierpień 2010

RECOMMENDATION T

Recommendation T, that took effect in the end of August 2010, constitutes a set of 25 recommendations developed by the Financial Supervision Commission, that require banks to change their procedures on management and risk control identification, measurement and risk acceptance. These recommendations detail the relationship between the requirements for documentation and verification of client's income in assessing creditworthiness (credit score).

In accordance with the recommendations 13.3 and 13.4: "The Bank shall obtain reliable confirmation of the customer's income. The Bank might accept credit rating on the income declared by the customer if the Bank is able to verify it (for example, by analyzing the history of customer's banking accounts, customer's tax returns and documentation for customer's other liabilities) and demonstrate their appropriate level of compliance with the actual facts (back testing); "The Bank may make an estimation of the size of income if the customer has the possibility of obtaining objective information necessary for such assessment (for example by analyzing the history of customer's banking accounts, other loans documentation, any other installment payments), and demonstrates an appropriate level of compliance with the actual standing (back testing). The actual method of income verification should be defined and approved by the Board of Directors of the bank.

Thus the question arises what T recommendations change in reality and whether banks will be required, prior to the installment loan, request from their costumers employer's income verification (or statements from their bank accounts demonstrating salary or tax returns showing earnings, etc.).

The Banks will continue to independently assess the creditworthiness of their customers based either on their declarations or bank's own estimates. However for the bank to borrow on this basis they must be able to verify such statements or estimates, and the opportunity to demonstrate their appropriate level of compliance with the facts. After analyzing the new T Recommendations, we believe that it doesn't directly conclude that customers have an obligation to provide banks with their payroll stubs nor that the banks have to verify the accuracy of their customer's income statements before granting any mortgage. So the requirement is not so much every time verification of income, based on source documents as possible objection by the bank and its right to verify income, based on source documents. Banks may reserve the right to verify the income provided by the customer on the basis of source documents. This amendment will result in extension of the bank's rights, granting them new tasks and powers.

All of the above involves the introduction of new procedures in the banks assessment of the creditworthiness of the customer. Banks have a right to further examine the financial conditions of the client to make sure that its earnings will enable them to repay the loan. This will require some changes in the activities of the bank. The bank should have appropriate internal procedures allowing effective remedies in the event of an unexpected decline in the collateral of the loan.

Markiewicz and Partners specializes in providing legal services for banks. Our legal team assists banks in the preparation of documentation related to the assessment of the creditworthiness of their customers. The provisions of Recommendation T were the subject of our analysis and opinions with directional guidelines for banks. Our firm offers legal advice on its interpretation and its actual impact on the operations of the banks. The person responsible for the banking practice in our firm is:

Przemyslaw Cichulski
Partner
p.cichulski@lbalegal.pl

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