ECB revises supervisory expectations for NPLs
The European Central Bank has taken on the risk provisions of the banks for NPLs. This was announced by the authorities yesterday. The ECB has decided to revise its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (hereafter the “Addendum”). The decision was made after taking into account the adoption of a new EU regulation that outlines the Pillar 1 treatment for NPEs. The new regulation, which entered into force on 26 April 2019, complements existing prudential rules and requires a deduction from own funds when NPEs are not sufficiently covered by provisions or other adjustments.
The revision follows the ECB’s commitment to reconsider supervisory expectations for new NPEs once the new legislation on the Pillar 1 treatment of NPEs had been finalised. In order to make the treatment of NPEs more consistent, the following changes have been made to the supervisory expectations communicated in the Addendum.
First, the scope of the ECB’s supervisory expectations for new NPEs will be limited to NPEs arising from loans originated before 26 April 2019, which are not subject to Pillar 1 NPE treatment. NPEs arising from loans originated from 26 April 2019 onwards will be subject to Pillar 1 treatment, with the ECB paying close attention to the risks arising from them.
Second, the relevant prudential provisioning time frames, the progressive path to full implementation and the split of secured exposures, as well as the treatment of NPEs guaranteed or insured by an official export credit agency, have been aligned with the Pillar 1 treatment of NPEs set out in the new EU regulation.
All other aspects, including specific circumstances, which may make prudential provisioning expectations inappropriate for a specific portfolio/exposure, remain as described in the Addendum. Press release, Euronews