ECB Revises Prudential Provisioning Expectations for New NPEs
ECB is revising its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (Addendum). The decision was made after taking into account the adoption of a new EU regulation that outlines the Pillar 1 treatment for NPEs. This new regulation, which entered into force on April 26, 2019 and amends the Capital Requirements Regulation regarding minimum loss coverage for NPEs, requires a deduction from own funds when NPEs are not sufficiently covered by provisions or other adjustments.
The revision of supervisory expectations follows the ECB commitment to reconsider supervisory expectations for new NPEs once the new legislation on Pillar 1 treatment of NPEs had been finalized. To make the treatment of NPEs more consistent, the following changes have been made to the supervisory expectations communicated in the Addendum:
- The scope of the supervisory expectations for new NPEs will be limited to NPEs arising from loans originated before April 26, 2019, which are not subject to Pillar 1 NPE treatment. NPEs arising from loans originated from April 26, 2019 onward will be subject to Pillar 1 treatment, with the ECB paying close attention to the risks arising from them.
- The relevant prudential provisioning time frames, the progressive path to full implementation, the split of secured exposures, and the treatment of NPEs guaranteed or insured by an official export credit agency have been aligned with the Pillar 1 treatment of NPEs set out in the new EU regulation.
All other aspects, including specific circumstances, which may make prudential provisioning expectations inappropriate for a specific portfolio/exposure, remain as described in the Addendum. Supervisory expectations for the stock of NPEs (that is, loans classified as NPEs on March 31, 2018) remain unchanged.
Related Links
Keywords: Europe, EU, Banking, NPLs, NPE, Credit Risk, CRR, Pillar 1, ECB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
BCBS Issues Sixteenth Progress Report on Adoption of Basel FrameworkRelated Articles
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
EBA Updates Lists of Entities for Use in Capital Calculations under SA
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
MAS Amends Notice on Related Party Transactions of Banks
MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.
ECB Amends Guideline on Euro Short-Term Rate
ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.
EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).
PRA Proposes Rules Related to IRB Approach for Credit Risk
PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.
BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.
FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks
FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.
OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks
OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.
EU Amends CRR and Securitization Regulation in Response to Pandemic
To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).
