The European Banking Authority has published its advice to the European Commission on the use of statutory prudential backstops to prevent the building up of new non-performing loans. The Commission consulted in November 2017 on proposals for statutory prudential backstops to address insufficient provisioning for newly originated loans that turn into non-performing loans and requested the EBA to provide technical advice on its proposals by November 27, 2017. On March 14, 2018, the Commission published its legislative proposals to amend the Capital Requirements Regulation to require minimum loss coverage for non-performing exposures.

The EBA’s advice provides an overview of the Commission’s November 2017 proposal and discusses certain technical aspects, such as the interaction of the proposals with the introduction of IFRS 9 as well as the existing prudential framework. The EBA’s advice also provides a quantitative assessment of the proposal which, the EBA stresses, is a conservative impact analysis given the data available and time constraints under which the report was produced.

The EBA is currently consulting on draft Guidelines for managing NPEs. The consultation closes on June 8, 2018. The EBA intends to finalize the guidelines during summer 2018. The EBA is proposing that the Guidelines would apply from January 1, 2019.

View the EBA’s advice to the Commission.

View the Commission’s proposed NPL package.

View the EBA’s draft Guidelines for managing NPEs.