In a response to the questions posed by a member of the European Parliament, Andrea Enria of the European Central Bank (ECB) explained how ECB assesses nonperforming loan (NPL) reduction strategies of banks within its prudential supervision mandate. The ECB Chair notes that NPLs continue to be a supervisory priority for ECB since the inception of European banking supervision in 2014. ECB expects banks with elevated NPL levels to come up with an action plan, follows up on the implementation of such a plan through off- and on-site inspections, and discusses with a bank how the bank will address the findings of on-site inspection.
The supervisory measures of ECB aim to ensure that banks actively address NPLs, which in turn helps to protect the safety and soundness of the European banking system. ECB regularly asks banks with elevated levels of NPLs to provide it with their plans to reduce their NPLs and foreclosed assets and it then follows up on the implementation of these plans. The ECB can assess NPL-reduction strategies and their implementation through off-site and on-site supervision. The on-site supervision can take the form of on-site inspections of specific portfolios covered by a bank’s NPL reduction strategy, which can include NPLs and foreclosed assets. ECB Banking Supervision cannot assess issues beyond its prudential mandate, such as matters pertaining to the European competition law. In addition, the assessment of NPL transactions of a bank can only focus on actual transactions. In their NPL reduction plans, banks often inform ECB about the assets that will be included in the implementation of the reduction strategy. It is not uncommon for banks to plan for and then execute sales of NPLs at prices below the current book values. In the ECB experience, banks often conduct such sales by inviting possible investors to make offers. Based on an assessment of the impact of the matter on the risk profile of a bank, ECB can decide to carry out an on-site inspection covering specific areas that it deems relevant. Findings identified in the on-site inspection are discussed with the bank and shared in a written report. ECB then expects the bank to provide an action plan setting out how it will address the findings.
Related Link: ECB Letter (PDF)
Keywords: Europe, EU, Banking, Credit Risk, NPL Reduction Strategies, Basel, COVID-19, NPLs, Banking Supervision, On-Site Inspections, Action Plan, ECB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.