We welcome EBA’s initiative of regulating the presentation of resolution funds contribution expenses and deposit insurance contribution expenses for the purpose of the IFRS FINREP reporting. Such initiative would definitely contribute to the harmonization of the presentation approaches across the EU banks.

Moreover, we take this opportunity for mentioning that further clarifications are needed with regards to the distinction between the two newly proposed lines 351 and 435 of table 2. Thus, we note that the description of the amounts to be reported in the line 435 (provisions) could be methodologically unsound. Namely, the new paragraph Annex V. Part 2.48a says: “Where the contribution is made in the form of a payment commitment, this payment commitment shall be included in ‘provisions or (-) reversal of provisions’, if the payment commitment gives rise to a financial liability in accordance with the applicable accounting standard.” In our view, relating “financial liabilities” with “provisions” is questionable because these two terms are mutually exclusive. The contributions are being made on a legal rather than contractual basis and are not financial instruments under IAS 32, i.e. they are not financial liabilities either. Thus the relevant criterion for treating the contributions as provisions under IAS 37 is whether they are of uncertain timing or amount. If this is the case we ask EBA for further specification.

We also note that IAS 37 does not define where the provisions expenses or their reversals should be presented in profit or loss. From this perspective we do not see a reason for distinguishing between expensed amounts to be reported as “provisions” in line 435 and respectively as “cash-based” in line 351. If nevertheless EBA decides to be prescriptive and move forward with distinguishing between the expense items to be respectively reported in the two mentioned lines, we would welcome a clarification about how updates in the original best estimates of such expenses should be reported. For instance, let us suppose that an amount of 100 is accrued at the beginning of the current reporting period, as representing bank’s best estimate of the contribution attributable to the period and that will have to be paid out at the end of the period. Let us also suppose that the actual amount established as due to the relevant authority is 105. Which of the following reporting alternatives is correct?
1. 105 shall be reported in row 351 of the template FIN 2 for the reporting period
2. 105 shall be reported in row 435 of the template FIN 2 for the reporting period
3. 100 shall be reported in row 435 and 5 shall be reported in row 351 of the template FIN 2 for the reporting period.

Yes, the definition is clear. In the same time however, we think that, in a majority of cases, received collaterals could be subject to “accumulate negative changes” for purely accounting reasons and this could retrieve an over-pessimistic view of the quality/performance of those collaterals. For instance, received collaterals that are recognized by the receiving entity as property, plant and equipment having a limited useful life and being measured at cost less depreciation would always have an “accumulated negative change” simply due to accounting depreciation, even if the fair value at the reporting date might have increased since the repossession date.

One aspect that could be further clarified with regards to the definition of “income-producing real estate” is whether the underlying contracts with the related tenants or buyers should already exist at the date of the loan in order for that property to qualify for “CRE property” and, therefore, in order for that loan to qualify for “CRE loan”. The analysis of compatibility with internal classification is on-going and, pending on the suggested clarification, no significant challenges are envisaged at the moment.

One aspect that could be further clarified with regards to the definition of LTV-C is specifying what loan value shall be considered in the calculation (contractual on-balance receivable including overdue amounts and/or accrued interest, outstanding principal, gross carrying amount including any unamortized origination fees and transaction costs), notably for loans measured at fair value and loans identified as purchased or originated credit impaired.
Another aspect that could be further clarified with regards to the definition of “current value of the property” is what is the oldest acceptable reference date of the assessment or price index referred to in the definition, by comparison to the current reporting date.
Additionally, at a more general level, we consider the requirement of calculating and disclosing LTV values for non-financial corporations as too complex since non-financial corporations usually have collaterals which are used for more than one product of one or more clients. Additionally, due to an m to n relationship between exposure and collateral, what should be considered as market value of collateral, the whole market value of the collateral associated with a specific exposure, or the market value allocated to a specific exposure (which would be technically demanding, as it would require completely new type of allocation)? Furthermore, how should the prior charges be treated as regards market value of collateral?
One aspect that could be further clarified with regards to the definition of LTV-C is specifying what loan value shall be considered in the calculation (contractual on-balance receivable including overdue amounts and/or accrued interest, outstanding principal, gross carrying amount including any unamortized origination fees and transaction costs), notably for loans measured at fair value and loans identified as purchased or originated credit impaired.
Another aspect that could be further clarified with regards to the definition of “current value of the property” is what is the oldest acceptable reference date of the assessment or price index referred to in the definition, by comparison to the current reporting date.
Additionally, at a more general level, we consider the requirement of calculating and disclosing LTV values for non-financial corporations as too complex since non-financial corporations usually have collaterals which are used for more than one product of one or more clients. Additionally, due to an m to n relationship between exposure and collateral, what should be considered as market value of collateral, the whole market value of the collateral associated with a specific exposure, or the market value allocated to a specific exposure (which would be technically demanding, as it would require completely new type of allocation)? Furthermore, how should the prior charges be treated as regards market value of collateral?

We believe that increasing the frequency of collecting/reporting this information would not be justified from a cost/benefit ratio standpoint. This is because, in the case of large banking groups, compiling this information requires significant time and effort given the relatively large number and wide diversity of group’s structure (territorial, legal, level of integration with group’s IT environment, etc.). At the same time, we would expect little informative benefit from increased (quarterly) frequency, given the relative stability of group’s structure i.e. the consolidation status of an entity once included in the consolidation scope generally does not change until deconsolidation of the entity. Additionally, many columns as ‘LEI code’, ‘Entity code’, ‘Entity name’ and other columns contain very constant information that is attached to an entity in the beginning of its existence and changes very rarely, if ever, over the lifetime of an entity.

We agree that the inclusion of this information in FINREP would provide a better view of the triggers impacting staff expenses for any given reporting period. We also agree that this is relevant to be collected and reported through FINREP, given the general significance of this category of administrative expenses in the financial sector as well as considering the focus that the banks have been placing on staff expenses, as also mentioned on point 60 of the Consultation Paper. At the moment, we have not noted any significant report-burdening inconsistencies with the data collected in accordance with EBA/GL/2014/08.

Further clarifications would be necessary in our opinion, as follows:
• Annex V. 327 & 328: the “gross carrying amount” of non-trading loans and advances measured at FVPL is as defined in Annex V.34.(a)? If yes, does it mean that the “accumulated negative change in FV due to credit risk” (to be reported in line 130 of F23) shall be deemed zero for performing FVPL non-trading loans?
• Annex V. 332 & 338: these paragraphs seem to indicate that the GCAs that should be cumulatively reported as YTD movements in/out the NPE category in the template F24.1 shall be the GCAs at the very point in time when the related movements occurred. As technical implementation of such requirement would lead to very high efforts and costs, we would kindly ask to confirm if month-end GCAs could be used in such cases (namely: GCA at the end of the month during which related movement occurs).
• Annex V. 341 & 342.d: we interpret the “increase” described in the paragraph 341 (F24.2 sub-row 30) as representing the adverse effect of passage of time over the net present value of the expected cash shortfalls (credit losses) calculated in accordance to IFRS9. Please confirm this understanding. Also, if this understanding is correct, we believe that further clarifications are necessary with regards to how the amounts (“decreases”) described in the paragraph 342.d (F24.2 sub-row 060) shall be calculated (namely: distinguished separately for NPLs for which impairment releases are observed during the reporting period while the exposure stays an NPL).

A major part of the NF information that would have to be reported within this template is more detailed than required by the current NFI reporting processes. A thorough assessment of the efforts and costs that would have to be incurred for adapting these processes to the more granular requirements of this template could not be completed by the deadline for providing our feed-back. However, we can already tentatively conclude that the mentioned efforts and costs would exceed the incremental NF informative benefits.

In formulating our comments to the Questions 1-8, we have already pointed out several clarification needs that, in our opinion, would help the proper understanding and implementation of the new requirements. We take the opportunity of Question 9 for submitting to your attention a few further comments, as follows:
• Consultation Paper, Chapter “Proportionality”, paragraph 27, 28: in order to assess the applicability of the “Module 2” reporting requirements and having in mind Guidelines on management of non-performing and forborne exposures, part 2, point 11: “Credit institutions with a gross NPL ratio equal to or greater than 5% on consolidated, sub-consolidated or solo level should apply sections 4 and 5 of these guidelines to the entities that have NPL ratios exceeding the set threshold.”, we assume that “the NPL ratio 5%” criterion, would apply on consolidated, sub-consolidated and solo level also in FINREP. Please confirm our understanding;
• Template F 16.8 “Other administrative expenses” row 040 “Taxes and duties (other)”. Annex V.208iii describes it as “taxes and duties other than (i) taxes related to profit or loss taxes and (ii) taxes and duties from discontinued operations. This item includes taxes and duties such as taxes levied on goods and services and the duties paid by the institution”. Does this mean that “banking tax” expenses that national regulators imposed in various national jurisdictions within EU (including Austria) would mandatorily have to be included in “general and administrative expenses” for FINREP reporting/presentation?
• Template F 16.8 “Other administrative expenses” row 070 “Expenses related to credit risk”. Annex V.208vi describes it as “expenses in the context of credit events, such as expenses incurred in relation to the realization of collateral or legal proceedings”. This description seems to diverge from IFRS9.B5.5.55, which states that “The estimate of expected cash shortfalls on a collateralized financial instrument reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral, irrespective of whether foreclosure is probable (ie the estimate of expected cash flows considers the probability of a foreclosure and the cash flows that would result from it)”. Does it mean that expenses that IFRS 9 indicates to be captured in the “net impairment loss” are expected to be reported under “other administrative expenses” by FINREP?
• Template F 16.8 “Other administrative expenses” row 080 “Litigation expenses not covered by provisions”. Annex V.208vii describes it as “litigation expenses that were not covered by an associated provision”. We believe that, in practice, such expenses should not exist under the assumption that the associated provisions can always be adjusted up or down in order to reflect the factual developments around on-going litigations, irrespective of the stage reached in the litigation process. Therefore, the integrality of entity’s litigation expenses would actually be captured in line 450 “Other Provisions” of F2 whilst the outflows extinguishing the related legal obligations would reflect in usages of the related provisions.
• Template 18 “Information on performing and non-performing exposures”: we think that it is unclear why the newly inserted columnar breakdown per IFRS Stages (STG1/STG2 for “performing” and STG2/STG3 for non-performing) is greyed-out for FVOCI debt instruments. Also, in our opinion it is unclear how POCI exposures would have to be captured in the newly created columns 109 (NPE-STG2) and 121 (NPE-STG3). Annex V (237.a) only indicates that all POCIs should be taken in column 122.
• Template 22.1 “Fee and commission income and expenses by activity”: The prepayment fees are part of contractual CFs and as such they should be part of the estimated CFs when calculating the EIR. Thus, they affect the net interest income normally through EIR and, when CF estimates are revised, through catch-up adjustments. From this perspective treating the prepayment fees as a fee income under IFRS 15 does not seem to be appropriate. On the other hand, there are also arguments in favor of the fee income treatment. If banks do not include prepayments and related fees in the CF estimates the prepayment fees would affect the NII only at the time when the prepayments occur and the fees are received. Such one-off NII impact (catch up in the very last moment of the payment) does not seem to be substantiated considering that the interest income is booked on accrual basis and one-off catch up adjustments should occur during the loan life as a result of CF estimate revisions. As a result, the EBA should carefully consider all the arguments before determining the accounting treatment of the prepayment fees.
• Template 26 “Forbearance management and quality of forbearance”: Distinguishing between exposures forborne once, exposures forborne twice and exposures forborne more than twice might be particularly difficult in terms of technical implementation, notably if one or more of the related forbearance measures triggers operational termination whilst the related deal is not de-recognized in accounting (“insignificant modification”) or, vice-versa, the related forbearance does not trigger operational termination whilst the related deal is de-recognized for accounting purposes (“significant modification”);
• Template 47 “Average duration and recovery periods”, row 10 “Non-performing loans and advances: weighted average time since past due date (in years)”. Annex V.366 describes a calculation approach that seems very complex: “The ‘weighted average time since past due date (in years)’ shall be calculated as the weighted average of the number of days past due of exposures classified as non-performing in accordance with paragraphs 213 to 239 or 260 of this Part at the reference date. Non-performing exposures that are not past due shall be considered as being zero days past due in this calculation. Exposures shall be weighted by the gross carrying amount. The weighted average time since past due date shall be expressed in years (with decimals)”. Also, we understand that period-end GCAs should be used as weighs. Please confirm this understanding. As a side comment, we think that the purpose of using GCAs as weighs (which is: placing more importance on large NPL exposures in calculating this average duration indicator) is inevitably altered if the related NPLs were in the meantime subject to partial or full (internal or external) write-offs.