Response to consultation on Guidelines on disclosure of non-performing and forborne exposures

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Question 1: Could you provide your views on whether adding an “of which” column to column ‘f’ of template 1 - “Credit quality of forborne exposures”, including the information on non-performing forborne exposures that are impaired (i.e. “of which impaired”) would be useful?

Including an “of which impaired” column to column ‘f’ would not provide users with additional useful information. Impaired balances of non-performing forborne exposures are already shown in column ‘d’ of the template. Accumulated impairment balances for stage 3 credit impairment (non-performing forborne exposures) is disclosed in banks interim and annual report and accounts following IFRS 7 disclosure requirements. Moreover, column headings of Template 4 are better aligned with IFRS 9 terminology, please refer to question 5 for more detail.

Question 2: Could you provide your views on whether adding the columns with the breakdown of provisions for non-performing exposures by buckets of the number of days that the exposure has been past due to template 3 - “Credit quality of performing and non-performing exposures by aging of past due days” would be useful?

Life time expected losses are recognised on non-performing exposures irrespective of the number of days past due. Therefore, we do not believe that additional columns on provisions for non-performing exposures by ageing would provide useful information to public, and banks already provide such information to regulator via FINREP 18 report.

The current proposals in CRR II requires banks to disclose an ageing analysis of accounting past due exposures, which is fully met by the existing CR1-D and Template 3 in the current format. Please refer to question 5 for more detail.

We believe that Template 4 provides more meaningful information to users. Using the additional information on partial write-offs and collateral and guarantees received, users are better able to assess the recoverability of banks’ non-performing exposures.

Question 3: Could you provide your views on whether the breakdown between “on balance sheet exposures” and “off balance sheet exposures” included in template 5 – “Quality of Non-performing exposures by geography” is useful?

Template 5 only applies to credit institutions with elevated level of non-performing exposures. SCB is significantly below the threshold of 5% NPL ratio.

Question 4: Could you provide your views on whether the information on loans and advances secured with immovable property with a loan-to-value higher than 60% and lower than 80% included in row 3 of template 7 – “Collateral valuation - Loans and advances at cost or amortised cost” is useful?

Template 7 only applies to credit institutions with elevated level of non-performing exposures. SCB is significantly below the threshold of 5% NPL ratio.

Question 5: Do you agree with the overall content of these guidelines and with the templates proposed? In case of disagreement, please outline alternatives that would help to achieve the purpose of the guidelines.

Content

We suggest limiting new disclosure requirements to information directly accessible from supervisory reporting.

We agree with the EBA’s view that the information included in the supervisory reporting framework should be sufficient for the supervisors to form a clear picture on the quality of assets held by institutions and similarly it should be enough for market participants to understand the risk profile of the banks” (page 50-51). However, when comparing the proposed disclosure templates to taxonomy 2.7, we observed the following differences:

• In Template 1 the breakdown of collateral and guarantees received for non-performing forborne loans is not available from FINREP 19 or other FINREP reports.

• Template 2 requirements in rows for exposures forborne more than once and twice are not available in FINREP 19.

• Template 3 contains additional time bands when compared to FINREP 18. Columns ‘h’, ‘j’ and ‘k’ (past-due >1 year <= 2 years, >2 years <=5 years and >5 years <= 7 years) do not feature in FINREP report.

• Template 4 can partially be sourced from FINREP 4. 3, 4.4 and 13.1 and 18. These FINREP reports do not provide the requested information on accumulated negative changes in fair value and the required level of asset class breakdown for collaterals and guarantees received.

• Template 9 requires disclosure of collateral values at initial recognition with accumulated impairments and negative changes in FV. This template is based on FINREP 13.2 in which banks report the carrying amount of collaterals. In template 9 the analysis of collaterals obtained by asset types does not reconcile to FINREP 13.2. Similarly, Template 7 and 10 exceed information available in FINREP 13.

We recommend removing disclosure requirements that are not within the scope of the current FINREP and COREP framework.

Timing

It is also noted that the EBA is currently working on the new version of supervisory reporting for FINREP. Consequently, we are unable to conclude on the feasibility of the disclosure templates until supervisory reporting is finalised. We ask the EBA to extend the consultation period until such date.

Consistency and overlap

We would welcome the EBA to state explicitly, if the newly proposed templates replace or supplement the existing disclosure requirements of EBA/GL/2016/11 published in December 2016. On page 47 of the consultation we read that the proposals will extend the requirements stated in EBA/GL/2016/11. However, we observed significant overlaps between disclosure Template 1 and CR1-E, Template 4 and CR1-E, Template 3 and CR1-D, Template 5 and CR1-C and Template 6 and CR1-B undermining the founding principles of Pillar 3 calling for clear, comprehensive and meaningful disclosures.

• When comparing Template 1 to CR1-E, which already contains “of which forborne” columns, we find limited additional information:
- Template 1 column A = Template CR1-E column C (Gross carrying amount of performing forborne exposures)
- Template 1 column B = Template CR1-E column C (Gross carrying amount of non-performing forborne exposures)
- Template 1 column C = Template CR1-E column N/A (Gross carrying amount of non-performing forborne exposures – of which defaulted)
- Template 1 column D = Template CR1-E column N/A (Gross carrying amount of non-performing forborne exposures – of which impaired)
- Template 1 column E = Template CR1-E column H (Accumulated impairment, negative changes in FV and provisions on performing forborne exposures)
- Template 1 column F = Template CR1-E column K (Accumulated impairment, negative changes in FV and provisions on non-performing forborne exposures)
- Template 1 column H = Template CR1-E column M (Collaterals received and financial guarantees received on forborne exposures)
- Template 1 column I = Template CR1-E column N/A (Collaterals received and financial guarantees received on forborne exposures – of which on non-performing forborne exposures)

• Template 4 appears to be an enhanced version of CR1-E, updated for IFRS 9.

- Template 4 column A = Template CR1-E column A less D (Gross carrying amount of performing exposures)
- Template 4 column B & C = Template CR1-E column N/A (of which: stage 1 & of which: stage 2)
- Template 4 column D = Template CR1-E column D (Gross carrying amount of non-performing exposures)
- Template 4 column E & F = Template CR1-E column N/A (of which: stage 1 & of which: stage 2)
- Template 4 column G = Template CR1-E column H (Performing exposures – accumulated impairment and provisions)
- Template 4 column H & I = Template CR1-E column N/A (of which: stage 1 & of which: stage 2)
- Template 4 column J = Template CR1-E column J (Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions)
- Template 4 column K & L = Template CR1-E column N/A (of which: stage 1 & of which: stage 2)
- Template 4 column M = Template CR1-E column N/A (Accumulated partial write-off)
- Template 4 column N = Template CR1-E column N/A (Collaterals and financial guarantees received on performing exposures)
- Template 4 column O = Template CR1-E column I (Collaterals and financial guarantees received on non-performing exposures)

• The content of CR1-D is limited to past-due exposures whilst Template 3 extends the analysis to performing and non-performing exposures.

• Templates 5 and 6 provide little to no additional information to users when compared to template CR1-B and CR1-C and significantly deviate from the proposed text of CRR II Article 442(e).

We, therefore, propose removing CR1-E to replace it with Template 4. We further recommend aligning Template 1 column headings to Template 4 dedicating it to forborne exposures, limited to information available in FINREP. This would allow Template 1 to be subset of Template 4. We also propose removing template CR1-D, Templates 5 and 6 from requirements. If the breakdown of on- and off-balance sheet information suggested in Template 5 is deemed useful, we suggest amending template CR1-C to reflect the required detail.

Clarity

Lastly, we recommend providing additional clarity to the instructions provided on the following templates:

• In Template 4 non-performing exposures are broken down to stage 2 and stage 3 exposures in columns ‘e’, ‘f’, ‘k’ and ‘l’. In accordance with IFRS 9, only stage 3 exposures are defined as credit-impaired and therefore non-performing. All stage 2 exposures should be reported in column ‘c’ and ‘i’ for performing exposures.

We propose removing “of which stage 2” from non-performing exposures.

• In template 9, it is unclear from the instructions whether rows 3 to 7 are intended as a subset of rows 1 and 2. Should rows 3+4+5+6+7=1+2 and rows 1+2=8?

Name of organisation

Standard Chartered Bank