Nationwide welcomes the opportunity to respond to the EBA’s consultation paper on its draft guidelines on Loan
Origination and Monitoring. We believe the guidelines will help to improve and standardise practices
relating to credit granting and associated governance, processes and mechanisms, across all financial institutions.
The scope is wide-ranging and there are some aspects that are not appropriate for institutions, such as
Nationwide, where the focus is on non-complex residential mortgages and consumer lending. That being
said, we welcome the EBA’s acknowledgement of the principle of proportionality, which in our view, is critical in the
successful application of these guidelines.
No significant obstacles to implementation are anticipated.
We support and comply with the requirements set in the draft guidelines for section 4.3 and 4.3.1. With regard to section 4.3.3 (rather than 4.3.2 as stated in Q3), in order to assess whether these requirements are future-proof, we request further clarity with regards to the EBA’s definition of “technology enabled innovation.”
In relation to section 4.3.4 (rather than 4.3.3 as stated in Q3) relating to environmental factors and green lending, we would welcome further guidance on how institutions, that focus on non-complex residential home loans and consumer lending, can meaningfully incorporate, in a way that is future-proof, ESG factors in their risk management and credit risk policies and procedures.
Nationwide supports the requirements for credit risk policies and procedures and we comply with section 4.3, 4.3.1 and 4.3.5. The section regarding leveraged transactions (4.3.2) is not applicable to Nationwide and therefore we are unable to provide a view.
Further clarification has been requested with regards to technology-enabled innovation (section 4.3.3) and environmental factors (4.3.4) – please refer to Q.3.
Nationwide welcomes the EBA’s approach to governance for credit granting and monitoring as this will impose uniformity. Nevertheless, with regard to section 4.4 number 59, we do not believe limiting delegated powers for credit decisioning, by time and number of applications, is appropriate for non-complex residential home-loans and consumer lending.
We believe these guidelines demonstrate just how varied and broad the role of risk management is within the credit granting process. It is clear that risk functions need to continue to evolve in order to maintain pace with changes in regulation, customer expectations of banking services and technology. We acknowledge, therefore, the need to consider factors such as climate change and technology enabled innovation, which is why we have requested further clarity in our response to question 3, so that we can critically evaluate how Nationwide can best incorporate these requirements in a way that is appropriate to our business. We are of the view that these guidelines will help institutions to prepare for longer-term changes and drive consistency across the sector.
Nationwide is supportive of the proposed guidelines. We strongly agree with the EBA that the principle of proportionality is critical to the successful implementation of these requirements. In particular, we share the EBA’s view that when implementing the requirements for the creditworthiness assessment, pricing, valuations and risk monitoring, the approach must be tailored to the nature and complexity of the credit facilities being offered. Nationwide offers non-complex residential mortgages and consumer lending and our approach to the collection of information and documentation, for the purposes of creditworthiness assessment, is proportionate and appropriate given the nature of the products.
We agree with the principles presented in section 5.2 on the requirements for assessment of borrower’s creditworthiness. Nationwide is supportive of measures being taken to harmonise the approach across all EU institutions, subject to the principles of proportionality, as it promotes consistency and adoption of best practices. Nationwide complies with these requirements (where relevant to Nationwide’s retail activities).
The scope of the asset classes and products is wide-ranging and much of it is not applicable to Nationwide’s retail activity which covers residential mortgages and Consumer lending (Credit Cards, Personal Loans and Current Accounts.)
Whilst a single framework does not currently exist, we are confident that all aspects of the loan pricing requirements covered in section 6 are currently included in the process of determining mortgage pricing by Nationwide. Targets and limits for all metrics are clear and monitored on an ongoing basis by key stakeholders, where performance against these is not in line with expectations or is forecast to breach targets or limits, mitigating activities are undertaken. The process for approving and monitoring the impact of reprice activity is also robust with proposed reprices approved by the weekly Heartbeat Committee with the ongoing performance of the range monitored on a daily basis.
Nationwide do not lend against movable property and we are therefore unable to provide a view in this regard. We are broadly supportive of the requirements relating to immovable property collateral, although numbers 212-214 inclusive are not considered practical nor appropriate given the non-complex, homogenous nature of our mortgage book. In terms of applying these guidelines, the principle of proportionality is key for this section as a number of the requirements are not suited to residential property valuations.
Nationwide agree that institutions must have a robust and effective monitoring framework in place in order to manage their credit risk exposures and ensure they remain within risk appetite. However, this framework must be tailored to the nature of the credit facilities being originated and in this regard, we seek the EBA’s confirmation that a proportionate approach should be applied.
Nationwide offers non-complex residential mortgages and, as such, many of the requirements in this section are not appropriate nor practical (sections 8.3, 8.4 and 8.7).