Response to discussion on the review of the NPL transaction data templates
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Despite this, the following areas of improvement are highlighted:
Template Financial instrument: the fields "Asset class" has been added. However, considering the allowed fields (SME, RETAIL and CORPORATE, etc.), “Asset class” should be reported in the Template Counterparty. Moreover, the field "Technical form" (type of financing – ex Current Account – Mortgage Loan) should be added to the same template.
Template Collateral and enforcement:
1. We suggest splitting the Secured scope from the Unsecured one. This approach would guarantee practicality during due diligence, since the evaluations are substantially different depending on whether you approach the enforcement of a mortgage rather than the recovery of an exposure guaranteed by a personal guarantee (surety);
2. Unclear granularity with respect to this field because the information provided should cover the loan level. This request must be logically implicit in the template (by default), so that all the assignment templates are comparable over time and among all market operators. The logic of filling data cannot be left to the discretion of the person who values the template;
3. it is essential to have connecting keys or identification codes in order to make the records within this template unique. Now, there is no identification code for the judicial procedure of recovery which would make the reading of the sheet with the order procedure - guarantee - real estate streamlined and intuitive, and we suggest to provide one
In addition, we suggest adding a standard multiple-choice field combined with a text box to describe the legal procedure current status. These fields should be classified as choice (not text) and should only be standard macro categories linked to country-specific legal procedures.
Here below a potential approach:
Legal procedure:
i. Individual - Foreclosure
ii. Corporate - Bankruptcy
iii. Out of court settlement (no legal procedure activated)
Legal procedure stage:
i. Initial stage
ii. On going
iii. Auction
iv. Court distribution
• Regarding the information reclassified as critical, it should be noted that the fields Fixed Assets, Current Assets, Cash and Cash Equivalent Items, Total Assets, Total Liabilities, Total Debt, Annual Revenue, Annual EBIT, Cross Default for Counterparty, Deposit Balance for Counterparty, Currency of Deposit, Eligibility for Deposit to Offset are not considered critical for Bad Loan exposures. Additionally, in some countries within the EU this information may not be available due to regulatory constraints (e.g., UK - Lux). The above fields would instead be critical for UTPs, as contracts are still in place and that information is necessary for a proper due diligence.
It is also necessary to introduce a specific field that distinguishes whether the loan should be categorized as Bad Loan or UTP in accordance with EBA definition.
• The following fields (deleted) should be restored from the previous version: Counterparty deceased, Date of Birth, Date when Reservation of Rights Letter Was Issued, Name of Counterparty, Nationality of Counterparty and Type of Personal Identity Number.
The above fields may be excluded for Bad loans
The importance of these fields is closely linked to performing, Past Due and UTP exposures.
• Within the fields re-classified as non-critical, in the case of UTP, there is some information considered as critical. The fields to be restored to critical level are the following: Amortization Type, Current Interest Rate, Type of Forbearance, Start Date of Interest Only Period, End Date of Interest Only Date, Start Date of Forbearance, End Date of Forbearance.
As far as the Leasing fields are concerned, the following structure is proposed:
1. Debtor ID: identification code of the debt position (Main debtor) provided by the Originator
2. Loan ID: identification code of the single loan used by the originator
3. Property ID: unique code that identifies the good
4. Property type: Operating lease or Financial lease
5. Property type: economic use of the good
6. Detailed Property type: detailed description of the good
7. New/ Used: Indication of whether the good is new or used
8. License plate: the license plate on which the registration data of a motor vehicle or motorcycle are engraved
9. Machine frame: constituent element of machines of all types, which ensures the mechanical strength of the various components of the machine itself
10. Sheet: cadastral sheet
11. Cadastrial particle: cadastral particle
12. Cadastrial Map: cadastral map
13. Commercial surface
14. Address: address in which the property is located
15. Municipality: municipality where the property is located
16. Province: province of the municipality where the property is located
17. Region: region of the municipality where the property is located
18. Updated Property Value: updated value of the property
19. Date: date on which the valuation was carried out
20. RE Valuation type: method used for the valuation
21. Repossessed: flag if the property has been repossessed
22. Property sold: identifies if the auction has been awarded
23. Partially sold: price of property sale
24. Date of sale: next auction date
All the above fields must be considered as critical, except for the field New/Used, Plate and License Plate.
1. Deleted - Court Auction Reserve Price for First Auction, First Auction Date, Sale Agreed Date, Contracted date, and Registration number.
2. Important - Collateral type, Legal Owner of the Property, Legal Owner and First Auction Date.
3. Non-critical - Next Auction Date, Collateral Repossessed Date and Description of Legal Procedure Type.
From the analysis of the provided xls Annexes, we noticed that some fields have been downgraded but confirmed in Annex I. Specifically, the fields are: Last Action Date, Court Auction Reserve Price for Last Auction, Court Auction Reserve Price for Next Auction. These fields should be reclassified back to critical level.
Within the Template Collateral and enforcement, Type of non-property collateral (data field 4.03), the choice "other financial asset" could be more inclusive in the wording "Other" (e.g., for pledges guaranteed by commodities).
Below is a proposal for standardizing procedures:
• Legal procedure:
1 - Individuals - foreclosure
2 - legal entities - bankruptcy
3 - Out of court settlement (No Legal action activated)
• Legal procedure phases:
1. Initial stage
2. On going
3. Auction
4. Court distribution
• History of Total Repayments: the frequency of repayments for at least thirty-six months, including collections from outside debt collection agencies. Each monthly amount should be presented in a separate column;
• Repayment Plan: whether a repayment plan has been agreed with an outside debt collection agency.
Instead, History of Legal Unpaid Balances, History of Past-Due Balances, History of Repayments - Not From Asset Sales, History of Repayments - From Asset Sales, Type of Identifier, Cash Recoveries, and Costs Accrued fields have been downgraded to non-critical.
In addition, we find very complex the attempt to create a plan of payment in column, other than little adaptable to the variety of technical forms (Bullet, Current Accounts).
It would be helpful if the template included the potential remodeling of the loan with the agreed upon features (term, principal, interest, amortization method).
To obtain a Template inclusive of all essential information, it is appropriate to evaluate the following data structure:
i. Borrower ID
ii. Loan ID
iii. Collection ID
iv. Collection Amount
v. Collection date
vi. Nature of collection (extrajudicial / judicial)
Currently, both the primary and secondary market may not have all the information necessary to fill all the data fields in the Templates.
Without prejudice to the principle of proportionality, it would be appropriate to create a Calendar to guide the data NPL completeness. For example:
• Establish a pass due date (new NPL flows) from which all the data required by the Templates must be enhanced.
• Establish a future date from which all the data required by the templates must be enhanced.
The first of these approaches is preferable, because it is presumable that some data will be difficult to find for older non-performing loans, especially within the secondary market.
b) The "ASSET CLASS" field should be moved from financial instruments to the Counterparties template.
c) It could useful adds a new fields within Financial Instruments:
i) Loan regulatory Classification (i.e. Bonis, Past Due, Unlikely to Pay, Bad Loan)
ii) loan - technical form (ie. current account - mortgage - credit card)
1. Do you agree with the proposed data structure and the relationship between templates? If not, please provide explanation.
Yes, the new structure of the data templates has been considerably simplified according to the previous version and it keeps the same structure known by the European and Italian market (i.e. italian GACS templates).Despite this, the following areas of improvement are highlighted:
Template Financial instrument: the fields "Asset class" has been added. However, considering the allowed fields (SME, RETAIL and CORPORATE, etc.), “Asset class” should be reported in the Template Counterparty. Moreover, the field "Technical form" (type of financing – ex Current Account – Mortgage Loan) should be added to the same template.
Template Collateral and enforcement:
1. We suggest splitting the Secured scope from the Unsecured one. This approach would guarantee practicality during due diligence, since the evaluations are substantially different depending on whether you approach the enforcement of a mortgage rather than the recovery of an exposure guaranteed by a personal guarantee (surety);
2. Unclear granularity with respect to this field because the information provided should cover the loan level. This request must be logically implicit in the template (by default), so that all the assignment templates are comparable over time and among all market operators. The logic of filling data cannot be left to the discretion of the person who values the template;
3. it is essential to have connecting keys or identification codes in order to make the records within this template unique. Now, there is no identification code for the judicial procedure of recovery which would make the reading of the sheet with the order procedure - guarantee - real estate streamlined and intuitive, and we suggest to provide one
2. Do you agree with the deletion of data categories ‘NPL portfolio’ and ‘Swap’? If not, please provide explanation.
Yes, removing the "NPL portfolio" and "Swap" data categories avoids redundancies between fields.3. Do you think the suggested list of data fields capture all the relevant information on the counterparty needed for NPL valuation and financial due diligence? If not, please indicate which other data fields should be included and provide explanation for this.
Regarding information classified as non-critical, the "legal procedure type" should be labelled as critical field and moved within the Collateral and Enforcement template.In addition, we suggest adding a standard multiple-choice field combined with a text box to describe the legal procedure current status. These fields should be classified as choice (not text) and should only be standard macro categories linked to country-specific legal procedures.
Here below a potential approach:
Legal procedure:
i. Individual - Foreclosure
ii. Corporate - Bankruptcy
iii. Out of court settlement (no legal procedure activated)
Legal procedure stage:
i. Initial stage
ii. On going
iii. Auction
iv. Court distribution
• Regarding the information reclassified as critical, it should be noted that the fields Fixed Assets, Current Assets, Cash and Cash Equivalent Items, Total Assets, Total Liabilities, Total Debt, Annual Revenue, Annual EBIT, Cross Default for Counterparty, Deposit Balance for Counterparty, Currency of Deposit, Eligibility for Deposit to Offset are not considered critical for Bad Loan exposures. Additionally, in some countries within the EU this information may not be available due to regulatory constraints (e.g., UK - Lux). The above fields would instead be critical for UTPs, as contracts are still in place and that information is necessary for a proper due diligence.
It is also necessary to introduce a specific field that distinguishes whether the loan should be categorized as Bad Loan or UTP in accordance with EBA definition.
• The following fields (deleted) should be restored from the previous version: Counterparty deceased, Date of Birth, Date when Reservation of Rights Letter Was Issued, Name of Counterparty, Nationality of Counterparty and Type of Personal Identity Number.
4. Do you think any specific data fields should be excluded from the template? If yes, please specify the data fields and give explanation to your answer.
Yes, the following fields should be considered critical for UTP exposures: Fixed Assets, Current Assets, Liquidity, Total Assets, Total Liabilities, Total Payables, Annual Income, Annual EBIT, Cross Default for Counterparty, Deposit Balance for Counterparty, Deposit Currency, Deposit Eligibility for Offset.The above fields may be excluded for Bad loans
5. Do you agree that data fields on current external and internal credit scores and current external and internal credit scores at origination should be included in the template (for both private individual and corporate counterparties)?
Yes, but only if we are referring to UTPs. Specifically, these data fields are important and available within primary market, as they are the information needed to accounting purposes according to international standard (i.e. IFRS9). On the contrary, in could be difficult to find and collect this information from the secondary market players.6. Do you agree that data fields on corporate’s latest available financial statement amounts should be included in the template?
Yes, exclusively for UTP, Past Due and Bonis exposures7. Do you agree that data fields related to corporate counterparties’ assets and liabilities, market capitalisation should be included in the template?
No, this is not so useful information for due diligence porpuses and very often it is difficult to find8. Do you agree with the proposed Template 2 of Annex I? If not, please provide explanation to your answer.
A table summarizing the connecting keys between the various templates can be useful but not necessary. Within each template the "Identifier" fields could be explicit9. Do you agree with the inclusion of the data fields related to interest rates and other information as per contractual agreement for the valuation and financial due diligence of NPLs, especially when they are not more than 90 days past due? Please provide data field-specific explanation to your answer.
Yes, this information is relevant in the pricing phase and particularly for Performing and Forborne positions that are in Probation Period10. Do you agree with the inclusion of the data fields related to forbearance measures for the valuation and financial due diligence of NPLs?
Yes, this information is relevant when pricing UTPs, since it affects the expected Net Present Value (NPV) cash flow simulation model.11. Do you think the suggested list of data fields capture all relevant information on financial instrument needed for NPL valuation and financial due diligence? If not, please indicate which other data fields should be included and provide explanation for this.
• Among cancelled data fields, the fields Product Type, Date of First Forbearance and Number of Historical Forbearance should be included and therefore maintained.The importance of these fields is closely linked to performing, Past Due and UTP exposures.
• Within the fields re-classified as non-critical, in the case of UTP, there is some information considered as critical. The fields to be restored to critical level are the following: Amortization Type, Current Interest Rate, Type of Forbearance, Start Date of Interest Only Period, End Date of Interest Only Date, Start Date of Forbearance, End Date of Forbearance.
12. Do you think any specific data fields should be excluded from the template? If yes, please specify the data fields and give explanation to your answer.
Yes, some field could be excluded for Bad Loan exposure exclusively.13. Do you agree with the data fields related to lease? Please provide data field-specific explanation to your answer.
No, the Leasing sheet will only cover leased assets. All the financial information contract related will have to be summarized within the Financial Instrument Template.As far as the Leasing fields are concerned, the following structure is proposed:
1. Debtor ID: identification code of the debt position (Main debtor) provided by the Originator
2. Loan ID: identification code of the single loan used by the originator
3. Property ID: unique code that identifies the good
4. Property type: Operating lease or Financial lease
5. Property type: economic use of the good
6. Detailed Property type: detailed description of the good
7. New/ Used: Indication of whether the good is new or used
8. License plate: the license plate on which the registration data of a motor vehicle or motorcycle are engraved
9. Machine frame: constituent element of machines of all types, which ensures the mechanical strength of the various components of the machine itself
10. Sheet: cadastral sheet
11. Cadastrial particle: cadastral particle
12. Cadastrial Map: cadastral map
13. Commercial surface
14. Address: address in which the property is located
15. Municipality: municipality where the property is located
16. Province: province of the municipality where the property is located
17. Region: region of the municipality where the property is located
18. Updated Property Value: updated value of the property
19. Date: date on which the valuation was carried out
20. RE Valuation type: method used for the valuation
21. Repossessed: flag if the property has been repossessed
22. Property sold: identifies if the auction has been awarded
23. Partially sold: price of property sale
24. Date of sale: next auction date
All the above fields must be considered as critical, except for the field New/Used, Plate and License Plate.
14. Do you think the suggested list of data fields capture all relevant information on collateral needed for NPL valuation and financial due diligence? If not, please indicate which other data fields should be included and provide explanation for this.
No, you should reclassify the following fields at critical level:1. Deleted - Court Auction Reserve Price for First Auction, First Auction Date, Sale Agreed Date, Contracted date, and Registration number.
2. Important - Collateral type, Legal Owner of the Property, Legal Owner and First Auction Date.
3. Non-critical - Next Auction Date, Collateral Repossessed Date and Description of Legal Procedure Type.
From the analysis of the provided xls Annexes, we noticed that some fields have been downgraded but confirmed in Annex I. Specifically, the fields are: Last Action Date, Court Auction Reserve Price for Last Auction, Court Auction Reserve Price for Next Auction. These fields should be reclassified back to critical level.
15. Do you think any specific data fields should be excluded from the template? If yes, please specify the data fields and give explanation to your answer.
No16. Do you agree with the data fields on the characteristics of non-property collateral? Please provide data field-specific explanation to your answer.
To guarantee a practical and fast due diligence it is essential to separate, in two distinct templates, the property collateral and the non-property collateral. In this way, the investor would have a clear and functional structure which allows a lower use of resources to manage the templates.Within the Template Collateral and enforcement, Type of non-property collateral (data field 4.03), the choice "other financial asset" could be more inclusive in the wording "Other" (e.g., for pledges guaranteed by commodities).
17. Do you agree with the data fields related to the enforcement of collateral? Please provide data field-specific explanation to your answer.
No, "Text" data fields should be avoided. Evaluate fields with "Choice" format.Below is a proposal for standardizing procedures:
• Legal procedure:
1 - Individuals - foreclosure
2 - legal entities - bankruptcy
3 - Out of court settlement (No Legal action activated)
• Legal procedure phases:
1. Initial stage
2. On going
3. Auction
4. Court distribution
18. Do you agree with the proposed Template 5 of Annex I for NPL valuation and financial due diligence? Please provide data field-specific explanation to your answer.
No, in the Template are identified as critical only the following data fields:• History of Total Repayments: the frequency of repayments for at least thirty-six months, including collections from outside debt collection agencies. Each monthly amount should be presented in a separate column;
• Repayment Plan: whether a repayment plan has been agreed with an outside debt collection agency.
Instead, History of Legal Unpaid Balances, History of Past-Due Balances, History of Repayments - Not From Asset Sales, History of Repayments - From Asset Sales, Type of Identifier, Cash Recoveries, and Costs Accrued fields have been downgraded to non-critical.
In addition, we find very complex the attempt to create a plan of payment in column, other than little adaptable to the variety of technical forms (Bullet, Current Accounts).
It would be helpful if the template included the potential remodeling of the loan with the agreed upon features (term, principal, interest, amortization method).
To obtain a Template inclusive of all essential information, it is appropriate to evaluate the following data structure:
i. Borrower ID
ii. Loan ID
iii. Collection ID
iv. Collection Amount
v. Collection date
vi. Nature of collection (extrajudicial / judicial)
19. Do you agree with description of data fields presented in data dictionary?
Yes, although overall there are still too many fields that have a "data field type" text. This chance of field enhancement should be minimized so that standardization can be achieved not only at the structure and data level. The primary goal of Data Templates is to ensure data comparability between different projects and operators. In addition, standardization would ensure ease of analysis of the templates by investors, market operators and regulators (ease of import into the European Data Hub). For this reason, it could be useful to replace data field type text with a multiple-choice field list.20. Do you agree with criticality (and non-criticality) of data fields presented in data dictionary? If not, please provide suggestions and explanations related to specific data fields.
Yes, with the exceptions commented above.21. Do you agree with confidentiality aspects of data fields? If not, please provide explanation.
Partially, it is necessary to include fields that involve sensitive/personal data. An example might be made regarding due diligence on unsecured debtors, which require the tax/VAT number to be analyzed. The same considerations should be made for guarantors. It is suggested that the confidentiality of these data can be managed through a prior agreement between the parties involved in the disposal (non-disclosure agreement). In this regard, it could be an opportunity to develop, as a standard Templates , a legal framework harmonized at the European level, with a common section and other sections that can be adapted/customized as needed22. Do you agree with excluding no data options for data fields? If not, please provide suggestions and explanations related to specific data fields.
Yes, No Data Option fields could represent a valuable proxy to measure the data quality granted by sellers over time. Specifically, we suggest historicizing all the Templates and periodically analyze No Data Option fields at different levels (e.g., institutions, industries, national, international).23. Please provide your views on how proportionality considerations regarding the size of the exposures or portfolios being sold should be incorporated in the implementation of NPL data templates.
Size, as explained in paragraph 59, should not be taken as a threshold for the quantity and quality of the information required. The field enhancement should be based on the type of asset class being sold (mortgage/secured - Unsecured).24. Should there be a threshold (e.g. in monetary terms) for the application of the proportionality principle? If yes, then how should this be defined?
N.A.25. Do you agree that the proposed approach takes into account, in an adequate way, the proportionality principle? If not, which additional elements should be considered?
No, the complexity and, consequently, the type of organization should be considered, at least in the initial phase.Currently, both the primary and secondary market may not have all the information necessary to fill all the data fields in the Templates.
Without prejudice to the principle of proportionality, it would be appropriate to create a Calendar to guide the data NPL completeness. For example:
• Establish a pass due date (new NPL flows) from which all the data required by the Templates must be enhanced.
• Establish a future date from which all the data required by the templates must be enhanced.
The first of these approaches is preferable, because it is presumable that some data will be difficult to find for older non-performing loans, especially within the secondary market.
26. Please provide your views on the asset classes covered and whether any specific data fields, other than already foreseen, should be included in the templates for ensure full coverage of certain asset classes.
a) We suggest to leading the fields criticality on the basis of type of exposure instead of counterparties (i.e., RRE, CRE, SME, Auto, Leasing, Unsecured, Specialised), distinguishing between exposures Secured and Unsecured.b) The "ASSET CLASS" field should be moved from financial instruments to the Counterparties template.
c) It could useful adds a new fields within Financial Instruments:
i) Loan regulatory Classification (i.e. Bonis, Past Due, Unlikely to Pay, Bad Loan)
ii) loan - technical form (ie. current account - mortgage - credit card)