Response to consultation on Guidelines on disclosure of non-performing and forborne exposures
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ESBG believes that adding an “of which” column would not represent a significant contribution. Since collaterals are being broken down between performing and non-performing in columns “e” and “f” including an additional level of detail may be counterproductive since hinders the understanding of the information.
In case the column will be added, the same breakdown should be considered for the collateral columns as well.
In case the columns will be added, we believe the breakdown of ageing buckets should be harmonized between EBA, the EU Commission and ECB to ensure comparability of the numbers, get a full picture and to avoid additional costs for implementation and reconciliation.
New templates require a great preparation effort and consistent reconciliation with similar ones. In this regard, from ESBG’s perspective, it would be more efficient to define a unified template for FINREP, National Central Bank and public disclosure. Moreover, public disclosures should not include more information than reserved financial templates (FINREP).
ESBG hopes that EBA will focus on harmonization when amending the reporting of NPEs and FBEs (FINREP), which is planned to be consolidated still in 2nd half of 2018.
Additionally, we would like to ask for confirmation of our understanding respectively providing more details:
1. In our understanding Template 7 contains only loans to customers at cost or at amortized costs as given in the definition but no loans which are measure fair value through P&L. Can you please confirm our understanding?
2. In Template 7 the amount in row 2 “of which: secured” is the capped amount of collateral as defined in Annex V of the Commission Implementing Regulation (EU) No 680/2014 as modified by Commission Implementing Regulation (EU) n°2017/1443 whereas the amount in row 8 “Collateral” is the uncapped amount of collateral. Can you please confirm our understanding?
3. In template 8, row 12 “Outflow due to risk transfers” is defined as gross reduction of non-performing loans and advances due to the securitization or other risk transfers qualifying for de-recognition from the balance sheet. Can you please provide references to CRR or examples for defining “other risk transfers qualifying for the de-recognition from the balance sheet”?
4. In Template 2 row 3 Non-performing forborne loans and advances that failed to meet the non-performing exit criteria is definite as gross carrying amount of non-performing forborne loans and advances that are in the perimeter of non-performing forborne loans and advances under probation of 1 year and failed to comply with the forbearance measures after the twelve months period of probation. Having in mind that the standard business practice (where exposures are treated as non-performing longer than 1 year to avoid re-defaults) as some Members States’ law (e.g. Austrian law sets up a minimum of 3 years for private insolvencies), our understanding is that average period in default for the respective Institution should be considered. Can you please confirm our understanding?
Question 1: Could you provide your views on whether adding an “of which” column to column ‘f’ of template 1 - “Credit quality of forborne exposures”, including the information on non-performing forborne exposures that are impaired (i.e. “of which impaired”) would be useful?
Please find ESBG general comments in the attached Position Paper.ESBG believes that adding an “of which” column would not represent a significant contribution. Since collaterals are being broken down between performing and non-performing in columns “e” and “f” including an additional level of detail may be counterproductive since hinders the understanding of the information.
In case the column will be added, the same breakdown should be considered for the collateral columns as well.
Question 2: Could you provide your views on whether adding the columns with the breakdown of provisions for non-performing exposures by buckets of the number of days that the exposure has been past due to template 3 - “Credit quality of performing and non-performing exposures by aging of past due days” would be useful?
ESBG thinks that adding the columns with the breakdown of provisions for non-performing exposures would not represent a significant contribution to the comparability between companies. Every term bucket would include a heterogeneity of operations, moreover provisions are not calculated by terms but by models that use other variables.In case the columns will be added, we believe the breakdown of ageing buckets should be harmonized between EBA, the EU Commission and ECB to ensure comparability of the numbers, get a full picture and to avoid additional costs for implementation and reconciliation.
Question 3: Could you provide your views on whether the breakdown between “on balance sheet exposures” and “off balance sheet exposures” included in template 5 – “Quality of Non-performing exposures by geography” is useful?
We believe that is suitable to distinguish between on-balance and off-balance positions to foster the comparability within other breakdowns and balance sheet reports.Question 4: Could you provide your views on whether the information on loans and advances secured with immovable property with a loan-to-value higher than 60% and lower than 80% included in row 3 of template 7 – “Collateral valuation - Loans and advances at cost or amortised cost” is useful?
ESBG considers that only those with LTV higher than 80% are relevant to the public. In our opinion the 60-80% LTV bucket should be removed.Question 5: Do you agree with the overall content of these guidelines and with the templates proposed? In case of disagreement, please outline alternatives that would help to achieve the purpose of the guidelines.
With regard to the proposed templates, ESBG believes they increase the reporting requirements on concepts that already disclosed in compulsory reporting. Forborne & defaulted exposures, collateral assessment, etc. are, in fact, currently being disclosed in Financial Reporting Framework (FINREP) and/or National Central Banks’ templates with different content [Table. 1].New templates require a great preparation effort and consistent reconciliation with similar ones. In this regard, from ESBG’s perspective, it would be more efficient to define a unified template for FINREP, National Central Bank and public disclosure. Moreover, public disclosures should not include more information than reserved financial templates (FINREP).
ESBG hopes that EBA will focus on harmonization when amending the reporting of NPEs and FBEs (FINREP), which is planned to be consolidated still in 2nd half of 2018.
Additionally, we would like to ask for confirmation of our understanding respectively providing more details:
1. In our understanding Template 7 contains only loans to customers at cost or at amortized costs as given in the definition but no loans which are measure fair value through P&L. Can you please confirm our understanding?
2. In Template 7 the amount in row 2 “of which: secured” is the capped amount of collateral as defined in Annex V of the Commission Implementing Regulation (EU) No 680/2014 as modified by Commission Implementing Regulation (EU) n°2017/1443 whereas the amount in row 8 “Collateral” is the uncapped amount of collateral. Can you please confirm our understanding?
3. In template 8, row 12 “Outflow due to risk transfers” is defined as gross reduction of non-performing loans and advances due to the securitization or other risk transfers qualifying for de-recognition from the balance sheet. Can you please provide references to CRR or examples for defining “other risk transfers qualifying for the de-recognition from the balance sheet”?
4. In Template 2 row 3 Non-performing forborne loans and advances that failed to meet the non-performing exit criteria is definite as gross carrying amount of non-performing forborne loans and advances that are in the perimeter of non-performing forborne loans and advances under probation of 1 year and failed to comply with the forbearance measures after the twelve months period of probation. Having in mind that the standard business practice (where exposures are treated as non-performing longer than 1 year to avoid re-defaults) as some Members States’ law (e.g. Austrian law sets up a minimum of 3 years for private insolvencies), our understanding is that average period in default for the respective Institution should be considered. Can you please confirm our understanding?