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

    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Assess Risks to Financial Sector After COVID-19 Outbreak

    ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.

    September 22, 2020 WebPage Regulatory News
    News

    BoE Confirms Withdrawal of COVID Corporate Financing Facility

    BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.

    September 22, 2020 WebPage Regulatory News
    News

    ECB Allows Temporary Relief in Leverage Ratio Amid COVID-19 Pandemic

    ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.

    September 21, 2020 WebPage Regulatory News
    News

    ESAs Launch Survey on Templates for Product Disclosures Under SFDR

    ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).

    September 21, 2020 WebPage Regulatory News
    News

    ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks

    ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.

    September 21, 2020 WebPage Regulatory News
    News

    EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules

    EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).

    September 21, 2020 WebPage Regulatory News
    News

    EBA to Phase Out Guidelines on Loan Repayment Moratoria

    EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.

    September 21, 2020 WebPage Regulatory News
    News

    EBA Provides Opinion on Definition of Credit Institution in CRR

    EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).

    September 18, 2020 WebPage Regulatory News
    News

    ECB Finalizes Methodology to Assess CCR and A-CVA Risk of Banks

    ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.

    September 18, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5820