17 May 2022
The European Banking Authority (EBA) today published the conclusion of its peer review of how prudential and consumer protection authorities supervise the management of non-performing exposures (NPE) by institutions and have implemented the EBA Guidelines on the management of NPE. The analysis suggests that the competent authorities across the EU have applied a risk-based approach to the supervision of NPE management. The EBA has not identified any significant concerns regarding the supervision practices but makes some general recommendations for further improvements.
As part of the peer review work plan for 2020-2021, the EBA conducted a peer review on the supervision of management of NPE, including the implementation of the EBA Guidelines on the management of non-performing and forborne exposures. The peer review also aimed at understanding the readiness of the competent authorities (and to the extent possible of institutions) for dealing with potential post-COVID-19 NPE increases.
The peer review findings review suggest that the EU competent authorities have applied a risk-based approach to the supervision of NPE management by the institutions, where the rigour and comprehensiveness of the supervisory review and supervisory resources allocated to these tasks by the authorities is in line with the magnitude of the NPE level in the jurisdiction or institutions.
The competent authorities from jurisdictions with a higher NPE level and involved in the supervision of a large share of institutions with elevated NPE levels, have implemented more sophisticated supervisory processes for NPE supervision and are more engaged with credit institutions under their supervision on the topics of NPE management.
The findings also suggest that the EBA Guidelines on management of non-performing and forborne exposures have been largely implemented by the prudential and consumer protection competent authorities and applied in their supervisory practices. No significant concerns regarding NPE supervision practices have been identified, but the EBA makes a number of general recommendations for further improvements. The peer review also includes recommendations to the EBA to incorporate a number of identified best practices into the Guidelines on management of non-performing and forborne exposures, when the latter will be reviewed in the future.
Article 30 of the EBA Regulation requires the EBA to periodically conduct peer reviews of some or all of the activities of competent authorities within its remit, to further strengthen consistency and effectiveness in supervisory outcomes. In addition, the peer review shall include an assessment of, but shall not be limited to the effectiveness and the degree of convergence reached in the application of Union law and in supervisory practice, including guidelines adopted pursuant to Article 16 of the EBA Regulation, and the extent to which the supervisory practice achieves the objectives set out in Union law. The EBA shall produce a report setting out the results of the peer review.
The peer review has been performed by the EBA’s Ad hoc Peer Review Committee’s (PRC) in accordance with the EBA peer review work plan for 2020-2021 and following the process in Article 30 of the EBA Regulation and EBA peer review methodology.
Since the topic of NPE management and its supervision is of importance both from prudential and consumer protection perspectives, the peer review covered both prudential and consumer protection authorities.