Featured Product

    ECB Letter Sets Out Strategies to Address Issue of Nonperforming Loans

    January 14, 2021

    ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans. Mr. Enria assured that ECB is monitoring the evolution of nonperforming loan ratios very closely and encouraging banks to develop reliable and prudent projections of their asset quality under different scenarios. In response to a question, he clarified that the ECB Banking Supervision has not yet developed any official proposal on the creation of a European asset management company and submitted it to EC, SRB, or representatives of the German government.

    In the letter, Mr. Enria noted that he has personally supported the idea of a European asset management company in the past and still thinks it has the potential to be a useful tool in the event of a significant system-wide deterioration in asset quality. Alternatively, he argued that a network of national asset management companies could also prove helpful in supporting a swifter economic recovery, if designed appropriately. He thinks that an integrated European response to such a problem would be preferable to a plethora of uncoordinated national initiatives. However, this was and remains a personal contribution to the policy debate, as the establishment of asset management companies, and the conditions for their compatibility with the EU legal environment, are outside the competencies of ECB. He also highlighted that EC has published a Communication detailing an action plan to tackle non-performing loans, which supports the establishment of EU network of asset management companies, among other things.

    In answer to a question on the measures planned by ECB to reduce nonperforming loans in the euro area, he emphasized that addressing nonperforming loans has always been one of the key priorities for ECB Banking Supervision. One very important element of the ECB framework, which facilitates the timely resolution of nonperforming loans, is the ECB “Guidance to banks on non-performing loans,” which was published in March 2017 and expects banks with high levels of nonperforming loans to develop their own strategies to reduce such loans and to put adequate governance arrangements in place. Such nonperforming loan strategies, which are reviewed and updated by banks on an annual basis, are assessed and challenged by Joint Supervisory Teams, which also monitor their implementation on an ongoing basis. He added that, in response to the COVID-19 pandemic, ECB has sent letters to banks communicating its expectations in this respect. Banks also need to ensure that they have sufficient operational capacity to deal with distressed debtors in the context of the pandemic. This should enable banks to provide appropriate solutions to distressed debtors in a timely manner, helping to contain the build-up of problem assets at banks and to minimize and mitigate any cliff effects, where possible. In this regard, the Joint Supervisory Teams are engaging with banks on a case-by-case basis.

     

    Related Link: Letter (PDF)

     

    Keywords: Europe, EU, Banking, NPLs, COVID-19, Credit Risk, Asset Management Company, Asset Quality, ECB

    Featured Experts
    Related Articles
    News

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    APRA Finalizes Guidance for New Prudential Standard on Remuneration

    The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.

    October 18, 2021 WebPage Regulatory News
    News

    OCC Updated LIBOR Self-Assessment Tool for Banks

    The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).

    October 18, 2021 WebPage Regulatory News
    News

    TCFD Updates Guidance for Financial Disclosures on Climate Risk

    The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

    October 14, 2021 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel III Framework

    The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.

    October 14, 2021 WebPage Regulatory News
    News

    ACPR Implements Updates Related to DPM Version 3.1

    The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.

    October 14, 2021 WebPage Regulatory News
    News

    EBA Note Examines Transition Risks of Benchmark Rates

    The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.

    October 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7571