Featured Product

    EBA Benchmarks National Insolvency Frameworks Across EU

    November 18, 2020

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC. The report presents a unique set of benchmarks, based on loan-by-loan data, showing averages and dispersion of the recovery outcomes across member states. The report discusses characteristics in insolvency regimes across EU that are associated with more efficient outcomes and identifies areas where the divergence in the effectiveness of the national insolvency regimes is widest, by analyzing a number of variables that help to explain the observed differences in the benchmarks.

    EC issued a Call for Advice for EBA in January 2019 for benchmarking of national loan enforcement frameworks across individual EU member states. For the analysis, EBA and the national competent authorities collected loan-by-loan data on loans under insolvency proceedings from more than 160 banks in 27 member states, with the reference date for data being the period before December 2018. The sample of loans under enforcement comprises more than 1.2 million loans and is divided into these asset classes: corporate, small and medium-size enterprises (SMEs), commercial real estate (CRE), residential real estate (RRE), retail credit cards, and retail-other consumer loans. Benchmarks are calculated by asset class for recovery rates (gross and net), time to recovery, and judicial cost to recovery. The data show that collateralized lending, including RRE and CRE, generally present higher recovery rates while retail credit cards generally show the lowest recovery rates, but are characterized by the shortest recovery times. Retail loans, in general (credit cards and other consumer loans), show the highest levels of judicial cost to recovery relative to the size of the receivables. Loans to large corporates always present higher recovery rates than loans to SMEs, whereas the time to recovery tends to be similar for the two loan categories. Loans to SMEs also show one of the highest judicial costs to recovery. 

    The legal system that forms the basis of the enforcement framework is a significant factor explaining the recovery rates and time to recovery. The results indicate that the existence of certain characteristics related to both the legal framework and the judicial capacity are important to improve the recovery outcomes. Positive characteristics of the enforcement frameworks that are common to three or more asset classes are, for example, the legal instruments to enable out-of-court enforcement of collateral available; the possibility for creditors to influence the proceedings through creditor committees; and the existence of triggers for collective insolvency proceedings taking into consideration the debtor's future positive or negative cash flow. Positive characteristics of the judicial capacity that seem important to improve the recovery outcomes include the existence of courts and judges specialized in insolvency cases as well as the possibility of electronic communication between the courts and the insolvency administrators. The report concludes that, at present, there is significant variability across member states in the effectiveness of national insolvency practices as measured by recovery rates, times of recovery, and costs of recovery. It is important that EU banks act proactively and take advantage of the best practices in local insolvency regimes to ensure speedy recoveries and to minimize the risk of accumulating non‐performing loans.


    Related Links

    Keywords: Europe, EU, Banking, Credit Risk, Benchmarking, CRE, RRE, NPLs, Loan Enforcement Framework, EBA

    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    News

    OSFI Announces Pilot Project on Climate Change Scenario Analysis

    OSFI Announces Pilot Project on Climate Change Scenario Analysis

    November 16, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153