The European Banking Authority (EBA) released today its final technical standards on supervisory reporting on Non-Performing Exposures and Forbearance, which will provide consistent indicators of asset quality of banks across the European Union. The EBA also issued recommendations on asset quality reviews (AQRs) aimed at supporting existing and/or planned reviews across the EU.

Final draft technical standards on Non-Performing Exposures and Forbearance

The standards on Non-Performing Exposures and Forbearance provide common definitions and reporting templates to allow supervisors to assess the level of forbearance activities and non-performing loans on a comparable basis across the EU.

More harmonised asset quality reviews, based on more comparable data, will help address uncertainties around EU banks' asset quality in the current context, and will support on-going and future monitoring of levels and changes in asset quality.

The proposed definitions of non-performing and forbearance exposures rely on the existing concepts of default and impairment but provide for specific harmonisation features. In particular, the definition of non performing exposures focuses on a 90-day past due threshold, while the definition of forbearance focuses on concessions extended to debtors who face, or may face, difficulties in meeting payments. Forborne exposures can be identified in both the non-performing and the performing portfolios. 

These definitions apply to all loans and debt securities that are on balance sheets, except for those held for trading, as well as to some off-balance sheet exposures.

The final standards will be sent to the European Commission for their adoption as EU Regulations that will be directly applicable throughout the EU.

Recommendations on AQRs

The EBA also issued recommendations to competent authorities for their existing and/or planned work on asset quality reviews (AQRs) across the European Union, including the work of the Single Supervisory Mechanism (SSM) and its balance sheet assessment. The aim of these recommendations is to contribute to a coordinated approach in the way competent authorities evaluate banks' credit portfolios.

In particular, for the purpose of the asset quality review, the EBA recommends competent authorities to apply, to the extent possible, the common definitions on "non-performing exposures" and "debt forbearance" published today.

Competent authorities should complete their respective AQRs by 31 October 2014 and report to the EBA, in due time, the preliminary outcomes so as to ensure they can be taken into account and support the next EU-wide stress test.