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EBA guidelines: non-performing & forborne exposures

EBA guidelines: non-performing & forborne exposures

Update 27-06-2019: We updated our publication of Non-Performing Exposures (NPEs) (PDF, 4.8MB) to consider recent important regulatory changes. The EBA guidelines on management of non-performing and forborne exposures enter into force from 30 June 2019 and is applicable to all Credit Institutions in the EU.

These guidelines set the requirements for EU national competent authorities to assess credit institutions’ NPE management activities. In addition, the European Parliament and Council introduced a provisioning backstop for NPEs (i.e. a binding minimum loss coverage for NPEs), applicable to all European Credit Institutions for new exposures originated from 17 April 2019 (Regulation no 2019/630 (PDF, 417KB), amending No 575/2013). 



The large legacy overhang of Non-Performing Exposures (NPEs) still remaining in the European Union (EU) is increasingly seen as a threat to the success of the Banking Union. Regulators have recently increased their interventions to speed up the banks´ NPE risk deleveraging process.

In July 2017, the EU Council announced an Action Plan to tackle the large overhang of Non-Performing Exposures (NPEs) which threaten the health of the Banking Union. This Action Plan includes several initiatives to be implemented in a short timeframe (mostly by the end of 2018). The final Guidelines issued in October 2018 by the European Banking Authority (EBA) for the management of nonperforming and forborne exposures contribute to this Action Plan.

The proposed Guidelines were first issued in draft for consultation in March 2018, meaning that many banks should already have started to identify any gaps in their NPE strategy, governance and operations against the Guidelines. All banks will need to address these gaps in policy and procedure, including the governance and operations of NPE recognition, impairment measures and write-off procedures, policies and procedures for the valuation of movable and immovable property collateral for NPEs, and the governance and operations of forbearance measures and processes.

The Guidelines are very similar to the European Central Bank's (ECB) guidance to banks on non-performing loans that was finalised in 2017. Therefore, banks directly supervised by the ECB will be familiar with the substance of the EBA's Guidelines. However, the Guidelines will apply to all (over 6,000) credit institutions (hereafter "banks") in the EU and will enter into force in June 2019, with no transitional period.

This paper, prepared by KPMG ECB Office, analyses the content of the EBA Guidelines and outlines what banks should do to prepare adequately for their implementation, while taking into account other recent initiatives that are likely to have a substantial impact on EU banks as they tackle the newly introduced Guidelines.