The European Banking Authority (EBA) launched today a consultation on its Guidelines for credit institutions on how to effectively manage non-performing exposures (NPEs) and forborne exposures (FBEs). The Guidelines target high NPE banks with the aim of achieving a sustainable reduction of NPEs to strengthen the resilience of their balance sheets and support lending into the real economy. The Guidelines are designed to ensure that consumers, who have taken out loans, are treated fairly at every stage of the loan life cycle. The consultation runs until 8 June 2018.
The Guidelines specify sound risk management practices for credit institutions for managing NPE and FBE, looking at the governance and operations of a NPE workout framework, the internal control framework and NPE monitoring, as well as early warning processes.
The Consultation paper asks for views on the threshold for assessing high NPE banks noting that credit institutions with elevated levels of NPEs, measured as a NPL ratio of 5% or above, should establish a NPE strategy and related governance and operational arrangements. Effective governance covers all responsibilities that banks have, including treating customers fairly.
The Consultation Paper also sets out requirements on processes to recognise NPEs and FBEs, as well as a forbearance granting process with a focus on the viability of forbearance measures. On the latter, the Consultation paper suggests that forbearance measures should be granted only when they aim to restore sustainable repayment by the borrower and are thus in the borrower's interest. Credit institutions are expected to monitor efficiency and effectiveness of forbearance measures and have in place policies and processes to assess borrowers' financial difficulties and identification of NPEs.
Finally, the Consultation Paper sets out requirements for competent authorities' assessment of credit institutions' NPE management activity as part of the Supervisory Review and Evaluation Process (SREP).
Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 8 June 2018.
A public hearing will take place at the EBA premises on 25 April 2018 from 11:00 to 12:30 UK time.
Legal basis and next steps
EBA has developed these Guidelines in accordance with the EBA Regulation, on the basis of EBA's Pillar 2 mandates in the CRD IV and following the conclusions reached by the Council in July 2017 to set up an Action Plan to tackle non-performing loans (NPLs) in Europe where EBA should contribute in a number of ways. In that respect, the Council has stressed that a comprehensive approach combining a mix of complementing policy actions, at national and European level, is needed to address the existing stock of NPLs as well as to prevent the emergence and accumulation of new NPEs on banks' balance sheets.
The Guidelines should be implemented by 1 January 2019.