Featured Product

    ECB Letter Sets Out Strategies to Address Issue of Nonperforming Loans

    January 14, 2021

    ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans. Mr. Enria assured that ECB is monitoring the evolution of nonperforming loan ratios very closely and encouraging banks to develop reliable and prudent projections of their asset quality under different scenarios. In response to a question, he clarified that the ECB Banking Supervision has not yet developed any official proposal on the creation of a European asset management company and submitted it to EC, SRB, or representatives of the German government.

    In the letter, Mr. Enria noted that he has personally supported the idea of a European asset management company in the past and still thinks it has the potential to be a useful tool in the event of a significant system-wide deterioration in asset quality. Alternatively, he argued that a network of national asset management companies could also prove helpful in supporting a swifter economic recovery, if designed appropriately. He thinks that an integrated European response to such a problem would be preferable to a plethora of uncoordinated national initiatives. However, this was and remains a personal contribution to the policy debate, as the establishment of asset management companies, and the conditions for their compatibility with the EU legal environment, are outside the competencies of ECB. He also highlighted that EC has published a Communication detailing an action plan to tackle non-performing loans, which supports the establishment of EU network of asset management companies, among other things.

    In answer to a question on the measures planned by ECB to reduce nonperforming loans in the euro area, he emphasized that addressing nonperforming loans has always been one of the key priorities for ECB Banking Supervision. One very important element of the ECB framework, which facilitates the timely resolution of nonperforming loans, is the ECB “Guidance to banks on non-performing loans,” which was published in March 2017 and expects banks with high levels of nonperforming loans to develop their own strategies to reduce such loans and to put adequate governance arrangements in place. Such nonperforming loan strategies, which are reviewed and updated by banks on an annual basis, are assessed and challenged by Joint Supervisory Teams, which also monitor their implementation on an ongoing basis. He added that, in response to the COVID-19 pandemic, ECB has sent letters to banks communicating its expectations in this respect. Banks also need to ensure that they have sufficient operational capacity to deal with distressed debtors in the context of the pandemic. This should enable banks to provide appropriate solutions to distressed debtors in a timely manner, helping to contain the build-up of problem assets at banks and to minimize and mitigate any cliff effects, where possible. In this regard, the Joint Supervisory Teams are engaging with banks on a case-by-case basis.

     

    Related Link: Letter (PDF)

     

    Keywords: Europe, EU, Banking, NPLs, COVID-19, Credit Risk, Asset Management Company, Asset Quality, ECB

    Featured Experts
    Related Articles
    News

    PRA Letter Sets Out Findings on Reliability of Regulatory Reporting

    PRA published a "Dear CEO" letter that sets out findings of a review on the reliability of regulatory reporting and reiterates the supervisory expectations on regulatory reporting.

    September 10, 2021 WebPage Regulatory News
    News

    APRA Connect to Go Live; APRA to Reduce Reliance on CLF

    The Australian Prudential Regulation Authority (APRA) confirmed that its new data collection solution APRA Connect will go live on September 13, 2021.

    September 10, 2021 WebPage Regulatory News
    News

    FED Paper Explores Fintech Partnership Dynamics in Community Banks

    The Federal Reserve System (FED) published a paper describing the landscape of partnerships between community banks and fintech companies.

    September 09, 2021 WebPage Regulatory News
    News

    FDIC Selects Four Vendors for Next Phase of Rapid Prototyping Pilot

    The Federal Deposit Insurance Corporation (FDIC) has chosen four companies—Novantas Inc, Palantir Technologies Inc, PeerIQ, and S&P Global Market Intelligence LLC—to propose a pilot consisting of testing new reporting and analytical tools with a small group of FDIC-supervised institutions on a voluntary basis.

    September 09, 2021 WebPage Regulatory News
    News

    PRA Consults on Requirements to Identify Material Risk-Takers

    The Prudential Regulatory Authority (PRA), via the consultation paper CP18/21, proposed changes to the applicable requirements on the identification of material risk-takers for the purposes of the remuneration regime.

    September 08, 2021 WebPage Regulatory News
    News

    ESA Report Points to Elevated Credit and Cyber Risks in Wake of Crisis

    The Joint Committee of European Supervisory Authorities (ESAs) published its second 2021 joint risk assessment report for the financial sector.

    September 08, 2021 WebPage Regulatory News
    News

    IOSCO on Compliance of Credit-Sensitive Rate with Benchmark Principles

    The International Organization of Securities Commissions (IOSCO) published a statement reiterating the importance of continued transition to robust alternative financial benchmarks—that is, risk-free rates—to mitigate potential risks arising from the cessation of LIBOR, including the USD LIBOR.

    September 08, 2021 WebPage Regulatory News
    News

    FED Proposes Revisions to FR Y-9 Reports

    The Board of Governors of the Federal Reserve System (FED) proposed revisions and three-year extension of the FRY-9 reports on financial statements for holding companies (OMB Control Number 7100-0128).

    September 08, 2021 WebPage Regulatory News
    News

    SRB Chair Discusses Improving Resolution Framework for Mid-Size Banks

    The Single Resolution Board (SRB) Chair, Elke König, published an article on improving the resolution framework for medium-size banks.

    September 08, 2021 WebPage Regulatory News
    News

    ACPR Issues Update on Reporting with Legal Entity Identifier

    The French Prudential Control and Resolution Authority (ACPR) announced that the testing environment for the ACPR information system and the OneGate portal will be available to receive test reports with the Legal Entity Identifier (LEI) from September 08, 2021.

    September 07, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7456