Views differ among banks. For some banks, these contributions are indeed part of “other operating expenses”, but other banks include this item in “administrative expenses”, “other administrative expenses”, as part of “tax expenses” according to IFRIC 21 or within the net interest income in the IFRS accounts. Also, “interest expenses” occurs based on national FSA guidelines. We believe that attention should be put on coherence between representation in financial statements and representation within FINREP templates. Consequently, to take account the different accounting rules, these specified lines would be located under “Profit or Loss before tax from continuing operations”.
We generally believe it is superfluous to show this line separately because these contributions should already be known to supervisory authorities. If the EBA keeps hold of a separate presentation of the contributions to resolution funds and deposit guarantee schemes, we suggest a separate line item.
While the definition is clear, we believe the information requested is burdensome and difficult to provide leading to poor data quality. Therefore, we suggest a revision of the table, at least eliminating columns 005 “Value at initial recognition” and 020 “Accumulated negative changes”. We also suggest renaming row 020 in “Investment property” and that this row shall become the sum of rows 030, 040 and 050 (to be renamed “other movable property”), and that row 060 and 070 contribute to the total 080 together with row 010 and 020.
The considerations above apply both to table 13.2.1 and to table 13.3.1. Instruction for both tables 13.2.1 and 13.3.1 clarifies that the scope of these templates is not limited to assets pledged as collateral but rather includes “assets that were not pledged by the debtor as collateral but were obtained in exchange for the cancellation of debt, whether on a voluntary basis or as part of legal proceedings.” We wish thus to understand whether also debt-to-equity operations – that is the case when an entity becomes consolidated after debt restructuring agreements – need to be reported as foreclosure.
Other comments on particular tables:
FR 18 “Information on performing and non-performing exposures”
Instructions related to columns 215 and 220, clarify that “An exposure that is reclassified multiple times from non-performing to performing or vice versa during the period shall be taken into account multiple times for the purposes of the determination of the amount of inflows and outflows, taking into account the respective gross carrying amounts at the time of the reclassification”. This creates an inconsistency with table 12.2 where instructions clarify that “for the reporting of the transfers that have taken place during the financial year, financial assets or off-balance exposures that have changed multiple times the impairment stage since the beginning of the financial year or their initial recognition shall be reported as having been transferred from their impairment stage at the opening of the financial year or initial recognition to the impairment stage in which they are included at the reporting reference date.”
Therefore, we suggest removing from this table these columns i.e. “Inflows to non-performing exposures” and “(-) Outflows from non-performing exposures”) as their implementation in term of breakdowns by all counterparty categories and additional “of which” would be significantly burdensome. Moreover, a comprehensive view on the flows of non-performing exposures is already requested in table “24.1 Inflows and outflows of non-performing exposures - loans and advances”.
In case the EBA deems it necessary to have this breakdown in FR 18, we suggest keeping it exclusively in relation to the counterparty breakdown and not detailed by SME, CRE and LTV as this adds little information but severely increase the operative effort needed to produce data, leading in the end to poor data quality.
As for FVTP&L portfolios, since the Gross Carrying amount corresponds to the Fair Value plus the negative variation in credit risk, we wish to understand how a possible variation in credit risk shall be reported in these columns.
The definition for commercial real estate is not the same as that used in COREP. The EBA definition (stemming from the ESRB recommendation) defines CRE as “income producing” real estate. However, “income producing” is not a criterion used currently in COREP. This will create confusion among data users and will add unnecessary complexity to reporting institutions. This notion is introduced in ‘Basel IV’ agreements and would be probably included in the European transposition. We thus highly recommend EBA to keep the current definition.
Furthermore, since COREP data already includes information on exposures secured by commercial real estate, we recommend not to include this data requirement in FINREP. The same rationale refers to RRE loans as well.
Moreover, we suggest deleting rows 132 and 135 as their content are mainly overlapping with those of table “23.3 Loans and advances: Commercial Real Estate loans by counterparty sector”.
The definition is neither sufficiently clear, nor easily applicable. In particular, it is not clear how, in case of a loan secured by more than one type of collateral (i.e. and immovable property and other guarantee) this shall be taken into account. Also, it is not clear if the value of the property shall be re-assessed on a quarterly basis that is at each reporting date. As this information is not available within the accounting system, implementation would require substantial time and costs.
FINREP evolution requires the LTV breakdown on the basis of the FINREP definition of CRE as loans collateralized by real estate property, whilst the NPE quarterly reporting requires the LTV breakdown on the basis of CRE as income-producing real estate. We suggest aligning the definitions to the one we consider more straightforward and easier to be implemented, i.e. CRE as loans collateralized by real estate property. Thus, we suggest deleting rows 142 and 143 because overlap with table “23.2 Loans and advances to households: Loans collateralized by residential immovable property”.
The same consideration above applies also for table FR_19 “Information forborne exposures”.
The frequency of these templates should remain annual since we see no benefit in a more frequent collection of the data. Group structures do not change often with data remaining fairly stable over time; more frequent reporting will thus not bring any additional benefit to supervisors. Also, COREP (template C6.00) includes similar data on a semi-annual basis; these data could be used instead.
Furthermore, these tables are highly costly and burdensome since reporting involves a high amount of manual input.
Other comments on particular tables:
FR_44.03 “Staff expenses by type of benefits”
We believe that the identification of staff expenses for IT STAFF (row 031) may not be readily available within the accounting system and the implementation will require major efforts, both in time and money, due to the need for restructuring the data generation process from sources external to the accounting environment.
FR_44.04 “Staff expenses by category of remuneration and category of staff”
We ask for a clarification of the relationships of columns 020 “of which: Identified staff” with columns 030 “of which: Management body (in its management function) and senior management” and 040 “of which: Management body (in its supervisory function)” as we interpret it to be the sum of columns 030 and 040.
The data is already collected in the EBA/GL/2014/08 (remuneration benchmarking exercise). The data should be excluded from FINREP as otherwise this would be regarded as double reporting, redundant and disproportionate.
Furthermore, the data required on salaries and staff are not accounting information but rather human resources information. We question the rationale to collect such information within the financial reporting framework. Accordingly, FINREP should only be designed for application by banks when preparing their consolidated supervisory financial reporting under IFRS standards, without adding any other nature of information.
In particular, we refer to:
Information on salaries and on number of staff by category (human resources information)
o IT staff wages and salaries (F44.3r031)
o Fixed and variable remuneration (F44.4r010and020)
o Fixed and variable remuneration of Management body (in its management function) and senior management”, “Management body (in its supervisory function)" and "other identified staff" (F44.4c020to040)
o Number of staff: Total, "Management body (in its management function) and senior management”, “Management body (in its supervisory function)" and "other identified staff" (F48r010to040)
Information on management data
o Average number of staff at retail branches (F48r060)"
According to the consultation paper (paragraph 35 on page 11) the opening balance is not the former closing balance. Instead the opening balance needs to be adjusted. We therefore propose that opening balance should not be reported. It should be enough to report only inflows, outflows and closing balance separately.
Regarding FINREP template 26 and the wording in Annex V regarding that template:
Please change the short description (definition) in FINREP template 26 Column 090 from of which: having been granted forbearance measures during the period" to "of which: having been granted forbearance measures during the present financial year", if the definition in Annex V page 364 is to be used instead of the current column heading (or amend the wording in Annex V if the template heading is to be followed).
The wording "... This includes originally forborne exposures that exited the forborne status (cured forborne exposures), but were granted new forbearance measures after that;" in Annex V, page 363(a)(i) can be read as "only include exposures having fulfilled the exit conditions between the implemented forbearance measures" or "include both exposures having, and not having, fulfilled the exit conditions between the implemented forbearance measures". Please update the wording in Annex V, page 363(a)(i) in order to fully explain and make it clear what exposures to include.
The wording "...forborne exposures under probation to which forbearance measures were applied in addition to forbearance measures granted at an earlier point..." in Annex V, page 363(a)(ii), does it mean only to include exposures where the additional forbearance measure(s) results in the borrower getting additional (accumulated) financial reliefs in the cash flow being paid to the bank, i.e. do not include forborne exposures where the same type of short term financial relief is made repeatedly after the maturity date for the previous short term forbearance measure, resulting in the same "prolonged" financial relief and not any additional (accumulated) financial relief in the cash flow being paid by the borrower to the bank (for example a prolongation of a short term "Deferment of payment", a second “extension of maturity" etc)? Or should exposures be included in FINREP template 26 row 160 no matter the type of forbearance measure being implemented to an exposure in a FINREP Forbearance Probation Period? The wording should be updated in Annex V, page 363(a)(ii) in order to fully explain and make it clear what exposures to include.
Furthermore, revision to the reporting on non-performing and forborne exposures raise the following concerns:
We believe that there is a strong need to align disclosures requirements and the FINREP templates, on the same items, regarding non-performing and forborne exposures. A strict alignment would provide clarity of the definitions used, it would limit the burden of collecting information, it would avoid overlapping of collecting and reporting similar information and it would facilitate consistency between disclosures and prudential data.
Several guidelines regarding non-performing and forborne exposures or related topics have been issued or will be issued with different implementation dates. The EBA guidelines on the application of the definition of default and Commission Delegated Regulation (EU) 2018/171 on materiality threshold will apply from 1 January 2021. The first reference date for the amended FINREP templates about the consultation paper is foreseen to be the 31 March 2020. The EBA guidelines on disclosure of non-performing and forborne exposures will apply from 31 December 2019. In such context, we would like to stress that alignment of definitions and scope which are highly correlated is important to reduce redundancies between the different reporting, and to allow smooth implementation of these various reporting requirements.
Request to distinguish between loans and advances that are in pre-litigation status or litigation status. This is a risk nature information which adds to the existing supervisory requests and which creates a new concept. As the information that is highly granular is not native in the financial system and not requested by accounting standards, it would imply additional IT development to be collected. Also, we question the rationale to collect information on pre-litigation situations that will not result in disputes.
The inclusion of cash balances at central banks and other demand deposits and the total alignment with criteria used in the draft EBA Guidelines on management of non-performing and forborne exposures reveal some contradictions in the following items:
o The proposed amendment of Article 1 (2) indicates that cash balances at central banks and other demand deposits “shall be excluded both from the denominator and the numerator”
o However, this amendment refers to “the definition of non-performing exposures as presented in section 17 of Part 2 of Annex V to Regulation N°680/2014. In this section, paragraph 2.217 indicates that debt instruments include also cash balances at central banks and other demand deposits.
o The Consultation Paper (paragraph 27) indicates “The threshold of 5% aligns the reporting criteria with the criteria used in the draft EBA Guidelines on management of non-performing and forborne exposures”. Paragraph 21 of these Guidelines refers to rows 070, 191 and 221 of F18 that currently include cash balances at central banks and other demand deposits.
Therefore, we strongly advocate EBA to maintain the NPL ratio definition (including cash balances at central banks and other demand deposits both on the denominator and the numerator) implemented by the banks, on which NPL ratio monitoring is based.
Thus, the last sentence of the proposed amendment of Article 1 (2) and the last sentence of the footnote 1 of paragraph 27 – “For the purpose of this calculation, loans and advances classified as held for sale, cash balances at central banks and other demand deposits shall be excluded both from the denominator and the numerator.” should be deleted."
Since some of the data related to number of staff, branches and payment services (also in table F 22.00) are already collected under the ECB Payments Statistics Regulation, we do not see any reason to collect the same information twice. The EBA should get the relevant data from the ECB directly.
Furthermore, we see no benefits to collect statistical information within financial templates with no link with accounting. On the contrary, we see great challenges resulting from the IT development costs needed to collect the information that would outweigh the benefits. Moreover, we are sceptical regarding the relevance of the information and the objective of FINREP to provide information on key aspects of the consolidated financial reporting for supervisors.
Finally, overlapping of reportings - similar information requested regarding a different scope of consolidated entities and collected by different authorities – should be avoided. Hence, authorities should be attentive not to increase the number of reports and to rationalise all the reporting frameworks that are applicable to banks.
Other comments on particular tables:
TABLE FR_48 “Additional information”
Clarification is required about row 060 “Average number of staff at retail branches”. In particular, it is not clear what should be reported here: i) the Average number of staff working in each retail branch or ii) the Average number of staff at retail branches taking into consideration the average value of all the staff working in retail branches over a given timeframe?
Regarding the “Number of online accounts”, row 070, a stricter perimeter should be defined of when an account can be defined an online account e.g. if a physical account that can be accessed remotely can be potentially counted as online account. This should align with the ECB definition in the payment statistics regulation: “accounts which the account holder can access and use electronically via the internet or with PC banking applications via dedicated software and dedicated telecommunication lines.
Concerning changes to FINREP about IFRS 16, we understand that lease liabilities are reported on a specific row under financial liabilities. It should be noted that these liabilities representing lease payments will be considered as leasehold debts rather than financial debts, and thus, classified as other liabilities in banks’ financial communication, causing differences in presentation between financial statements and FINREP templates.
In some cases, the very detailed level of information that corresponds to a detailed product type level or that consists of several items is not directly available in the accounting general ledgers. It can only be provided through database management systems. For these cases, as we do not believe that the role of FINREP templates is to follow up additional detailed statistical or management data, we question the rationale to collect such information within the financial reporting framework. (question 6).
We refer to:
• Very detailed level of information that corresponds to a detailed product type level (management control information)
o IT outsourcing charges (F16.8r020)
o Fine granularity of payment service fee products: Current accounts, Credit cards, Debit cards and other card payments, Transfers and other payment orders (F22.1r131to135)
o Fee and commission expenses by activity: Payment services - Credit, Debit and other Cards (F22.1r256)
• Number of instruments concerned by some information (statistical information) (F23.1to23.3r010to030; F26r010)
In addition, the information should be reported at the highest level of the group consolidation. Thus, “IT sourcing” expenses are related to the use of external service providers. External service providers shall be understood as provided by external entities outside the scope of the entire group.