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March 08, 2018

EBA launched a consultation on the guidelines for credit institutions on effectively managing non-performing exposures (NPEs) and forborne exposures (FBEs). The consultation on the guidelines runs until June 08, 2018 and the guidelines are to be implemented by January 01, 2019. EBA also released a video to help the interested stakeholders get familiar with the key features of the two sets of EBA templates on non-performing loans (NPLs) published on December 14, 2017. EBA designed the templates to help restart the secondary markets for NPLs in Europe, thus contributing to the EC action plan (released in July 2017) to tackle NPLs in Europe.

The guidelines are designed to ensure that consumers, who have taken out loans, are treated fairly at every stage of the loan life cycle. The guidelines specify sound risk management practices for credit institutions for managing NPEs and FBEs, looking at the governance and operations of the NPE workout framework, the internal control framework, and the NPE monitoring and early warning processes. The consultation paper seeks views on the threshold for assessing high NPE banks. The consultation paper notes that credit institutions with elevated levels of NPEs, measured as an NPL ratio of 5% or above, should establish the NPE strategy and related governance and operational arrangements. 

The consultation paper also sets out requirements on processes to recognize NPEs and FBEs, along with a forbearance granting process, with a focus on the viability of forbearance measures. The paper suggests that forbearance measures should be granted only when they aim to restore sustainable repayment by the borrower and are thus in the interest of the borrower. Credit institutions are expected to monitor efficiency and effectiveness of forbearance measures and have in place policies and processes to assess borrowers' financial difficulties and identification of NPEs. The paper sets out requirements for competent authorities' assessment of credit institutions' NPE management activity as part of the Supervisory Review and Evaluation Process or SREP.

Related Links

Comment Due Date: June 08, 2018

Effective Date: January 01, 2019

Keywords: Europe, EU, Banking, Guidelines, SREP, Non-Performing Exposures, NPLs, EBA

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