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    EBA Proposes Standards to Support Secondary NPL Markets

    May 17, 2022

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers. The Authority also published a report on the peer review of how prudential and consumer protection authorities supervise the management of non-performing exposures (NPEs) by institutions.

    The draft implementing technical standards are intended to provide a common standard for the NPL transactions across European Union, thus reducing information asymmetries between the sellers and buyers of NPL and enabling cross-country comparison. The definitions of data fields and their characteristics set out in the draft standards would facilitate the sales of NPL on secondary markets, increase efficiency of these markets, and reduce entry barriers for small credit institutions and smaller investors wishing to conclude transactions. The draft standards also set out the requirements for the treatment of confidential information being exchanged between the credit institutions and the buyers as well as governance requirements for the credit institutions to ensure that the information being provided is complete, accurate, and consistent. Along with these standards, EBA has published the common NPL data templates. The draft standards are built around the templates to be used for the provision of loan-by-loan information regarding counterparties related to NPL, contractual characteristics of the loan itself, any collateral and guarantee provided with the associated enforcement procedures, and the historical collection and repayment schedule of the loan. The NPL transaction templates are also complemented by a data glossary and the instructions for filling in the templates. Following the consultation period, the draft standards will be finalized and submitted to the European Commission by the end of 2022.

    The report on peer review assesses how authorities supervise the management of NPEs and have implemented the EBA Guidelines on the management of non-performing and forborne exposures. Overall, the review finds that EBA Guidelines on the management of non-performing and forborne exposures are being applied effectively by both prudential and consumer protection authorities across the European Union. The findings also suggest that the European Union competent authorities have applied a risk-based approach to the supervision of NPE management by the institutions, where the rigor and comprehensiveness of the supervisory review and supervisory resources allocated to these tasks by the authorities is in line with the magnitude of the NPE level in the jurisdiction or institutions. The peer review has not identified any significant concerns regarding the supervision practices but makes some general recommendations for further improvements. The review identified a number of good practices that it recommends the competent authorities to consider applying in their work in relation to NPE management, The peer review also includes recommendations to the EBA to incorporate a number of identified best practices into the Guidelines on management of non-performing and forborne exposures, when these guidelines will be reviewed in the future. 

     

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    Keywords: Europe, EU, Banking, Credit Risk, NPLS, NPE, Implementing Technical Standards, NPL Templates, Guideline, Forborne Exposures, EBA, Subheadline

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