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March 14, 2018

ECB published the final addendum to the ECB Guidance to banks on non-performing loans (NPLs), which reflects comments received during public consultation. ECB also published the detailed comments submitted by stakeholders and a feedback statement setting out its consideration of those comments. The addendum specifies the supervisory expectations of ECB for prudent levels of provisions for new NPLs. The addendum is non-binding and will serve as the basis for supervisory dialog between the significant banks and the ECB Banking Supervision.

The addendum supplements the qualitative NPL guidance of ECB, which was published on March 20, 2017, and addresses loans classified as NPLs in line with the EBA’s definition after April 01, 2018. The ECB expectations in this addendum serve as starting point for the supervisory dialog. During the supervisory dialog, ECB will discuss, with each bank, divergences from the prudential provisioning expectations laid out in the addendum. After this dialog and taking into account a bank’s specific situation, ECB Banking Supervision will decide, on a case-by-case basis, whether and which supervisory measures are appropriate. The result of this dialog will be incorporated, for the first time, in the 2021 Supervisory Review and Evaluation Process (SREP). Banks are advised to use this time to prepare themselves and to review their credit underwriting policies and criteria to reduce the production of new NPLs.

 

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Keywords: Europe, EU, Banking, NPLs, Addendum, Responses to Consultation, SREP, ECB

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