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
CBIRC and PBC Publish Report on Inclusive Financial DevelopmentRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
