We welcome the new Guidelines as we believe that they help strengthening bank´s governance and risk management practices. We think they introduce relevant improvements that will assist banks and overall economy in reducing NPL formation and, especially, facilitate their resolution.
Section 7 introduces a few elements that, in our view, will help banks to manage their immovable property risk more efficiently and align with NPL market practices. While an accurate and updated valuation at any point of the credit cycle remains the most important factor to assess risk, additional risk measures can be of similar importance when loan becomes non-performing: liquidity of the asset, likeliness of enforceability and estimated time to recovery. These are crucial elements in market pricing of NPL portfolios. The estimation of this parameters when there are signs of deterioration of the loan (paragraph 196) are a good starting point for banks to assess and manage risk on those positions. Moreover, it will speed up processes and increase the negotiation position against buyers. While we would advocate for these elements being incorporated also at origination, we also acknowledge that its mandatory inclusion as soon as signs of deterioration appear as a reasonable compromise to facilitate fast adoption by banks.
Finally, with respect to valuation we understand that the scope of these GL is limited by CRR, as outlined in impact assessment section. However, any step towards harmonisation of real estate valuation practices and methodologies would be also favourable in terms of marketability and pricing of NPLs.