ECB Consults on an Addendum to its Guidance on Non-Performing Loans

The draft addendum specifies quantitative supervisory expectations for minimum levels of prudential provisions for new NPLs. The prudential provisioning expectations will apply to all exposures that are newly classified as non-performing, in line with the EBA definition as of January 01, 2018. These take into account the length of time a loan has been non-performing and the extent and valuation of collateral. Banks are expected to provide full coverage for the unsecured portion of new NPLs after 2 years at the latest and for the secured portion after 7 years at the latest. Furthermore, banks are expected to explain any deviation from the guidance to supervisors. Based on a bank's explanations, ECB will assess the need for additional supervisory measures.

It is proposed that the draft addendum will be applicable to new NPLs. With regard to NPL stocks, ECB Banking Supervision has required banks with high levels of NPLs to submit NPL strategies, including their NPL reduction targets, in the first half of this year. Many banks have made notable progress and submitted credible strategies including reduction plans. However, some banks still need to improve. ECB Banking Supervision will continue to closely monitor progress on reducing NPLs, provisioning for NPL stocks, and developments with respect to NPL strategies. By the end of the first quarter of 2018, ECB Banking Supervision will present its consideration of further policies to address the existing stock of NPLs, including appropriate transitional arrangements.

Related Link: Consultation, FAQ, and Reference Documents (PDF)

Comment Due Date: December 08, 2017

Keywords: Europe, EU, Banking, NPLs, Guidance, Addendum, FAQ, ECB