The EBA’s draft Guidelines on loan origination and monitoring (the Guidelines) are the new standard for credit underwriting in Europe.
KPMG ECB Office published a paper on the Guidelines which outlines what banks should do to prepare adequately for their implementation.
These Guidelines have the objective to improve the overall credit risk management practices in Europe and to ensure more robust, prudent and uniform lending standards between banks and EU jurisdictions. The Guidelines are expected to be available in final form in January 2020, and implemented by banks from 30 June 2020.
Prior to these Guidelines, most Irish Significant Institutions (SIs) have already been subject to some degree of supervisory scrutiny on the quality of their credit risk management practices. While the underlining principles were aligned with the EBA’s requirements, the regulatory expectations are now formalised and extensively detailed within the Guidelines. This greatly reinforce the regulatory focus on the topic and the importance of compliance.
The Guidelines also apply to all regulated credit institutions. We therefore anticipate that Irish banks of all sizes will be impacted (or at least to explain and substantiate any areas of non-compliance).
It is important that credit institutions are in a position to evidence compliance, and it is strongly recommended that a gap analysis between the requirements of the Guidelines and current practices is undertaken. This will support interactions with the regulator and assist in addressing any deficiencies.
KPMG Ireland has extensive credit risk management and regulatory experienced and can support banks with performing a regulatory gap analysis (using our proprietary tool).