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

    PRA to Elaborate on Approach to Transposition of CRD5 by Mid-December

    PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.

    November 30, 2020 WebPage Regulatory News
    News

    EIOPA Consults on KPIs on Sustainability for Non-Financial Reporting

    EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.

    November 30, 2020 WebPage Regulatory News
    News

    SRB Sets Out Work Program for 2021-2023

    SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.

    November 30, 2020 WebPage Regulatory News
    News

    ECB Publishes Guide on Management of Climate and Environmental Risks

    ECB finalized guidance on the way it expects banks to prudently manage and transparently disclose climate and other environmental risks under the current prudential rules.

    November 27, 2020 WebPage Regulatory News
    News

    BCBS Amends Capital Treatment of Non-Performing Loan Securitizations

    BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.

    November 26, 2020 WebPage Regulatory News
    News

    BoE to Move Statistical Data Collection to BEEDs Portal

    BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.

    November 25, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Standards and Guidance for EFS Data Collection

    APRA published the updated reporting standards and guidance for the collection of Economic and Financial Statistics (EFS), following a consultation process. Also published was a response letter to the feedback received on the proposal for amending the EFS reporting standards and guidance.

    November 24, 2020 WebPage Regulatory News
    News

    EC Consults on Criteria for Environmentally Sustainable Activities

    EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable.

    November 20, 2020 WebPage Regulatory News
    News

    IFRS Examines Incorporation of Climate Risk Issues into IFRS Standards

    The IFRS Foundation published material highlighting the ways in which existing requirements in IFRS standards require companies to consider climate-related matters when their effect is material to the financial statements.

    November 20, 2020 WebPage Regulatory News
    News

    FSB Report Outlines Progress on Interest Rate Benchmark Reform

    FSB published a progress report on the implementation of reforms to major interest rate benchmarks, including the London Inter-bank Offered Rate (LIBOR) benchmark.

    November 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6167