EBA Final Report on Guidelines on Management of Non-Performing and Forborne Exposures

On October 31, the European Banking Authority (“EBA“) published its final report on guidelines on the management of non-performing and forborne exposures (EBA/GL/2018/06).

The guidelines seek to reduce non-performing exposures (“NPEs“) on banks’ balance sheets. The EBA expects credit institutions with a gross non-performing loan (“NPL“) ratio at 5% or above to establish NPE strategies and to introduce governance and operational requirements to support those strategies. The NPE strategy should set out the credit institution’s approach and objectives regarding effective management to maximize recoveries and ultimately a reduction in NPE stocks in a clear, credible and feasible manner for each relevant portfolio.

The guidelines cover:

  • The development and implementation of the NPE strategy and the operationalization of the strategy.
  • Supervisory expectations on the use of forbearance.
  • The recognition of NPEs and NPE impairments and write-offs.
  • Supervisory requirements on the collateral valuation of movable and immoveable property.

Guidance is also provided in the guidelines to competent authorities on addressing NPEs and forborne exposures (“FBEs“) in the supervisory review and evaluation process (“SREP“).

Credit institutions are expected to apply the guidelines as of June 30, 2018 based on gross NPL ratios calculated at December 31, 2018.

The EBA consulted on a draft version of the guidelines in March 2018. The report sets out details of the feedback received on the consultation and changes made to the draft guidelines reflecting that feedback.