Featured Product

    EBA Publishes Guidelines on Loan Origination and Monitoring

    May 29, 2020

    EBA published guidelines on loan origination and monitoring, which bring together prudential standards and consumer protection obligations, along with the anti-money laundering and the Environmental, Social, and Governance (ESG) considerations. The guidelines contain expectations of EBA for improved creditworthiness assessments and the expectations apply to all banks offering loans to consumers, small and medium-size enterprises (SMEs), and corporates and to other creditors offering loans to consumers. The guidelines will apply from June 30, 2021, with certain transitional arrangements.

    The objective of the guidelines is to improve banks’ credit-granting practices and governance arrangements to ensure that they have robust and prudent lending standards. This in turn should ensure that newly originated loans are of high credit quality and contribute in the future to lower levels of nonperforming loans. The guidelines specify internal governance arrangements for the granting and monitoring of credit facilities throughout the lifecycle. In the guidelines, EBA also provides guidance on the valuation of collateral at the point of loan origination as well as for the monitoring and revaluation. Th guidelines clarify the credit decision-making process, including the use of automated models, building on the requirements of the EBA guidelines on internal governance. The guidelines set requirements for assessing the borrowers’ creditworthiness and for handling of information and data for the purposes of such assessments.

    In these requirements, the guidelines bring together the prudential and consumer protection objectives of EBA. EBA has developed these guidelines building on the existing national experiences, addressing shortcomings in institutions’ credit granting policies and practices highlighted by past experiences. The guidelines reflect recent supervisory priorities and policy developments related to credit granting, including environmental, social and governance factors, anti-money laundering and countering terrorist financing, and technology-based innovation. The guidelines will apply from June 30, 2021. However, institutions will benefit from a series of transitional arrangements. The application of the guidelines to the already existing loans and advances that require renegotiation or contractual changes with the borrowers will be from June 30, 2022. Institutions will be allowed to address possible data gaps and adjust their monitoring frameworks and infrastructure until June 30, 2024.

    Notwithstanding the extended transition period, EBA notes that all loan origination requires effective risk oversight and management. EBA also calls on competent authorities to exercise their judgment and be pragmatic and proportionate in monitoring the implementation of the guidelines, taking into account the operational challenges and priorities institutions may have due to the COVID-19 pandemic, while facilitating the economic recovery efforts. These guidelines are vital to strengthening lending standards and asset quality in the future. These guidelines will replace the existing EBA guidelines on creditworthiness assessments under the Mortgage Credit Directive (EBA/GL/2015/11), which the EBA issued in June 2015 and which will be repealed with the effect from the date of application of the guidelines on loan origination and monitoring.

     

    Related Links

    Effective Date: June 30, 2021 (with transitional arrangements)

    Keywords: Europe, EU, Banking, Credit Risk, NPLs, Loan Origination, Guidelines, Mortgage Credit Directive, ESG, Governance, AML, Fintech, Artificial Intelligence, Big Data, COVID-19, EBA

    Featured Experts
    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484