Guidelines on management of non-performing and forborne exposures

These Guidelines target high NPE banks with the aim of achieving a sustainable reduction of NPEs to strengthen the resilience of their balance sheets and support lending into the real economy. The Guidelines are designed to ensure that consumers, who have taken out loans, are treated fairly at every stage of the loan life cycle.

Related docs

Final Report on Final Guidelines on management of non-performing and forborne exposures
Public hearing presentation
Compliance table (Updated on 23 March 2021)

The EBA launches consultation on how to manage non-performing exposures

08 March 2018

The European Banking Authority (EBA) launched today a consultation on its Guidelines for credit institutions on how to effectively manage non-performing exposures (NPEs) and forborne exposures (FBEs). The Guidelines target high NPE banks with the aim of achieving a sustainable reduction of NPEs to strengthen the resilience of their balance sheets and support lending into the real economy. The Guidelines are designed to ensure that consumers, who have taken out loans, are treated fairly at every stage of the loan life cycle. The consultation runs until 8 June 2018.

The Guidelines specify sound risk management practices for credit institutions for managing NPE and FBE, looking at the governance and operations of a NPE workout framework, the internal control framework and NPE monitoring, as well as early warning processes.

The Consultation paper asks for views on the threshold for assessing high NPE banks noting that credit institutions with elevated levels of NPEs, measured as a NPL ratio of 5% or above, should establish a NPE strategy and related governance and operational arrangements. Effective governance covers all responsibilities that banks have, including treating customers fairly.

The Consultation Paper also sets out requirements on processes to recognise NPEs and FBEs, as well as a forbearance granting process with a focus on the viability of forbearance measures. On the latter, the Consultation paper suggests that forbearance measures should be granted only when they aim to restore sustainable repayment by the borrower and are thus in the borrower's interest. Credit institutions are expected to monitor efficiency and effectiveness of forbearance measures and have in place policies and processes to assess borrowers' financial difficulties and identification of NPEs.

Finally, the Consultation Paper sets out requirements for competent authorities' assessment of credit institutions' NPE management activity as part of the Supervisory Review and Evaluation Process (SREP).

Consultation process

Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 8 June 2018.

A public hearing will take place at the EBA premises on 25 April 2018 from 11:00 to 12:30 UK time.

Legal basis and next steps

EBA has developed these Guidelines in accordance with the EBA Regulation, on the basis of EBA's Pillar 2 mandates in the CRD IV and following the conclusions reached by the Council in July 2017 to set up an Action Plan[1] to tackle non-performing loans (NPLs) in Europe where EBA should contribute in a number of ways. In that respect, the Council has stressed that a comprehensive approach combining a mix of complementing policy actions, at national and European level, is needed to address the existing stock of NPLs as well as to prevent the emergence and accumulation of new NPEs on banks' balance sheets.

The Guidelines should be implemented by 1 January 2019.

Press Release

EBA publishes peer review on management of non-performing exposures

17 May 2022

The EBA Guidelines on the management of non-performing and forborne exposures are being applied effectively by both prudential and consumer protection authorities across the EU.
The EBA observes a risk-based approach to the supervision of NPE management, and a number of good practices to be followed up by all competent authorities and reflected in future updates of the EBA Guidelines.

The European Banking Authority (EBA) today published the conclusion of its peer review of how prudential and consumer protection authorities supervise the management of non-performing exposures (NPE) by institutions and have implemented the EBA Guidelines on the management of NPE. The analysis suggests that the competent authorities across the EU have applied a risk-based approach to the supervision of NPE management. The EBA has not identified any significant concerns regarding the supervision practices but makes some general recommendations for further improvements.

As part of the peer review work plan for 2020-2021, the EBA conducted a peer review on the supervision of management of NPE, including the implementation of the EBA Guidelines on the management of non-performing and forborne exposures. The peer review also aimed at understanding the readiness of the competent authorities (and to the extent possible of institutions) for dealing with potential post-COVID-19 NPE increases.

The peer review findings review suggest that the EU competent authorities have applied a risk-based approach to the supervision of NPE management by the institutions, where the rigour and comprehensiveness of the supervisory review and supervisory resources allocated to these tasks by the authorities is in line with the magnitude of the NPE level in the jurisdiction or institutions.

The competent authorities from jurisdictions with a higher NPE level and involved in the supervision of a large share of institutions with elevated NPE levels, have implemented more sophisticated supervisory processes for NPE supervision and are more engaged with credit institutions under their supervision on the topics of NPE management.

The findings also suggest that the EBA Guidelines on management of non-performing and forborne exposures have been largely implemented by the prudential and consumer protection competent authorities and applied in their supervisory practices. No significant concerns regarding NPE supervision practices have been identified, but the EBA makes a number of general recommendations for further improvements. The peer review also includes recommendations to the EBA to incorporate a number of identified best practices into the Guidelines on management of non-performing and forborne exposures, when the latter will be reviewed in the future.

Background

Article 30 of the EBA Regulation requires the EBA to periodically conduct peer reviews of some or all of the activities of competent authorities within its remit, to further strengthen consistency and effectiveness in supervisory outcomes. In addition, the peer review shall include an assessment of, but shall not be limited to the effectiveness and the degree of convergence reached in the application of Union law and in supervisory practice, including guidelines adopted pursuant to Article 16 of the EBA Regulation, and the extent to which the supervisory practice achieves the objectives set out in Union law. The EBA shall produce a report setting out the results of the peer review.

The peer review has been performed by the EBA’s Ad hoc Peer Review Committee’s (PRC) in accordance with the EBA peer review work plan for 2020-2021 and following the process in Article 30 of the EBA Regulation and EBA peer review methodology.

Since the topic of NPE management and its supervision is of importance both from prudential and consumer protection perspectives, the peer review covered both prudential and consumer protection authorities.

EBA publishes final guidance on management of non-performing and forborne exposures

31 October 2018

The European Banking Authority (EBA) publishes today its final Guidelines on management of non-performing and forborne exposures. The Guidelines, developed in accordance with the European Council Action Plan, aim to ensure that credit institutions have adequate prudential tools and frameworks in place to manage effectively their non-performing exposures (NPEs) and to achieve a sustainable reduction on their balance sheets. To this end, the Guidelines require institutions to establish NPE reduction strategies and introduce governance and operational requirements to support them.

The Guidelines specify sound risk management practices for credit institutions in their management of NPEs and forborne exposures (FBEs), including requirements on NPE reduction strategies, governance and operations of NPE workout framework, internal control framework and monitoring. The Guidelines are written from a prudential perspective, but are also mindful of the pressing needs related to consumer protection to ensure that consumers are treated fairly.

The Guidelines also set out requirements for processes to recognise NPEs and FBEs, as well as a forbearance granting process with a focus on the viability of forbearance measures. In particular, the Guidelines specify that institutions should grant forbearance measures only with the view to return the borrower to a sustainable performing repayment status and are thus in the borrower's interest.

The Guidelines introduce a threshold of 5% of gross NPL ratio as a trigger for developing NPE strategies and applying associated governance and operational arrangements. This threshold does not indicate an optimal level for NPLs and should not be considered as an automatic target to be used in credit institutions' NPE strategies but sets a prudential framework for stricter supervisory monitoring to guard against rising levels of NPEs.

Finally, the Guidelines outline requirements for competent authorities' assessment of credit institutions' NPE management activity as part of the Supervisory Review and Evaluation Process (SREP).

The Guidelines, which are addressed to credit institutions and supervisors, take into account the proportionality aspects in their implementation and, where applicable, provide concrete examples in relation to small and less complex institutions.

Legal basis and next steps

The EBA has developed these Guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 and following the conclusions reached by the European Council in July 2017 specifying an Action Plan to tackle non-performing loans (NPLs) in Europe. In that respect, the Council has stressed that a comprehensive approach combining a mix of complementing policy actions, at national and European level, is needed to address the existing stock of NPLs as well as to prevent the emergence and accumulation of new NPEs on banks' balance sheets.

The Guidelines apply from 30 June 2019.

Consultation Papers

Consultation on Guidelines on management of non-performing and forborne exposures

Summary 08/03/2018

The Consultation Paper also sets out requirements on processes to recognise NPEs and FBEs, as well as a forbearance granting process with a focus on the viability of forbearance measures. On the latter, the Consultation paper suggests that forbearance measures should be granted only when they aim to restore sustainable repayment by the borrower and are thus in the borrower’s interest. Credit institutions are expected to monitor efficiency and effectiveness of forbearance measures and have in place policies and processes to assess borrowers’ financial difficulties and identification of NPEs.

Finally, the Consultation Paper sets out requirements for competent authorities’ assessment of credit institutions’ NPE management activity as part of the Supervisory Review and Evaluation Process (SREP).

Consultation process

A public hearing will take place at the EBA premises on 25 April 2018 from 11:00 to 12:30 UK time.

Legal basis and next steps

EBA has developed these Guidelines in accordance with the EBA Regulation, on the basis of EBA’s Pillar 2 mandates in the CRD IV and following the conclusions reached by the Council in July 2017 to set up an Action Plan[1] to tackle non-performing loans (NPLs) in Europe where EBA should contribute in a number of ways. In that respect, the Council has stressed that a comprehensive approach combining a mix of complementing policy actions, at national and European level, is needed to address the existing stock of NPLs as well as to prevent the emergence and accumulation of new NPEs on banks’ balance sheets.

The Guidelines should be implemented by 1 January 2019.

Responses

Public Hearing

Note: A Public Hearing is related to this consultation but is not visible to public users since the date is past