Featured Product

    ECB Chair Explains Process for Review of Bank NPL Reduction Strategies

    July 01, 2021

    In a response to the questions posed by a member of the European Parliament, Andrea Enria of the European Central Bank (ECB) explained how ECB assesses nonperforming loan (NPL) reduction strategies of banks within its prudential supervision mandate. The ECB Chair notes that NPLs continue to be a supervisory priority for ECB since the inception of European banking supervision in 2014. ECB expects banks with elevated NPL levels to come up with an action plan, follows up on the implementation of such a plan through off- and on-site inspections, and discusses with a bank how the bank will address the findings of on-site inspection.

    The supervisory measures of ECB aim to ensure that banks actively address NPLs, which in turn helps to protect the safety and soundness of the European banking system. ECB regularly asks banks with elevated levels of NPLs to provide it with their plans to reduce their NPLs and foreclosed assets and it then follows up on the implementation of these plans. The ECB can assess NPL-reduction strategies and their implementation through off-site and on-site supervision. The on-site supervision can take the form of on-site inspections of specific portfolios covered by a bank’s NPL reduction strategy, which can include NPLs and foreclosed assets. ECB Banking Supervision cannot assess issues beyond its prudential mandate, such as matters pertaining to the European competition law. In addition, the assessment of NPL transactions of a bank can only focus on actual transactions. In their NPL reduction plans, banks often inform ECB about the assets that will be included in the implementation of the reduction strategy. It is not uncommon for banks to plan for and then execute sales of NPLs at prices below the current book values. In the ECB experience, banks often conduct such sales by inviting possible investors to make offers. Based on an assessment of the impact of the matter on the risk profile of a bank, ECB can decide to carry out an on-site inspection covering specific areas that it deems relevant. Findings identified in the on-site inspection are discussed with the bank and shared in a written report. ECB then expects the bank to provide an action plan setting out how it will address the findings.


    Related Link: ECB Letter (PDF)


    Keywords: Europe, EU, Banking, Credit Risk, NPL Reduction Strategies, Basel, COVID-19, NPLs, Banking Supervision, On-Site Inspections, Action Plan, ECB

    Featured Experts
    Related Articles

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699