Response to consultation Paper on draft Guidelines on loan origination and monitoring.

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5. What are the respondents’ views on the requirements for governance for credit granting and monitoring (Section 4)?


6. What are the respondent’s views on how the guidelines capture the role of the risk management function in credit granting process?


7. What are the respondents’ views on the requirements for collection of information and documentation for the purposes of creditworthiness assessment (Section 5.1)?


8. What are the respondents’ views on the requirements for assessment of borrower’s creditworthiness (Section 5.2)?


9. What are the respondents’ views on the scope of the asset classes and products covered in loan origination procedures (Section 5)?


10. What are the respondents’ views on the requirements for loan pricing (Section 6)?


11. What are the respondents’ views on the requirements for valuation of immovable and movable property collateral (Section 7)?

Requirements for valuation at the point of origination

A - The requirement under paragraph 191 is that a valuation is undertaken at the commencement of the loan (whether in respect of immovable or movable property) and that it is carried out accurately".
For the purpose to complement what “accurately” means, paragraph 191 is to be read in conjunction with paragraphs 193 and 222, so accurately means competently "in accordance with applicable international, European and national standards".

B - We welcome the mention of RICS standards in paragraph 193 of the draft guidelines, however we would like this footnote to be amended as follows:
• “Institute” to be replaced with “Institution” as RICS stands for the “Royal Institution of Chartered Surveyors”;
• Include the reference to “International Valuation Standards” in the interest of consistency with Recital 26 of the EU Mortgage Credit Directive (MCD) which also mentions international standards “developed by the International Valuation Standards Committee”.

Valuation consistency and reliability can only be realised if there is consistency in the valuation process, and that in turn, can only be achieved if recognised standards and related guidance are being used. Just as in the financial reporting world – with the development of globally recognised standards in the form of IFRS, which are extensively adopted across the EU – there have been major advances in the valuation reporting world. The emergence of a set of international valuation standards (IVS) is now increasingly being taken up by individual jurisdictions, often with a commitment to alignment or convergence between existing jurisdictional standards and those more recent international standards. It should be emphasised that standards do not displace the expertise and judgement of the valuer in individual cases, which remains paramount, but provide a recognised framework within which the valuation process takes place.

The EBA needs to be seen to recommend the best international standards in valuation. These are IVS’s – created by an independent organisation whose only purpose is to create independent standards for valuers (public interest) and not by a membership organisation for their members. RICS has long been a supporter of the development of such universal standards and the RICS Red Book fully incorporates the IVS and provides a practical implementation framework for the consistent interpretation and application of IVS. The Red Book is issued by RICS as part of our commitment to promote and support the highest of standards in valuation delivery.

We would also like to emphasise that IVS and RICS Red Book standards apply across all expressions of market valuation for all asset classes, including all types of immovable and movable property collateral referred to in the draft guidance.

Finally, we would also like to explore the possibility of referencing the need for consistent property measurement standards. We are aware that the measurement data that forms a key metric of valuations is currently not standardised. Research has shown that, depending on the standard used, the ‘size’ of a property can vary up to 24% which can severely undermine the objective of internationally consistent valuation and financial reporting standards. International Property Measurement Standard (IPMS), developed by a group of more than 80 professional and not-for-profit organisations from around the world, will ensure that property assets are measured in a consistent way, creating a more transparent marketplace, greater public trust, stronger investor confidence, and increased market stability.

Immovable property collateral

A - We would like to draw the attention to paragraph 200c), which may not be easy to satisfy in full for a "desk top" or "drive by" valuation, and so would need some recognised limitation in those circumstances.

B - As regards the wording of in paragraph 200 e) , it is worth mentioning that on the whole valuers would not expect to make legal enquiries but to rely on information supplied by the (separate) legal advisers.

Movable property collateral

A - We understand that under the requirements for valuation at the point of origination the draft guidelines seem to imply that statistical model-based valuation is only accepted for movable property collateral. If this is the case, we would suggest a more explicit reference aiming to a greater clarity of the text."

12. What are the respondents’ views on the proposed requirements on monitoring framework (Section 8)?


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