Response to consultation Paper on draft Guidelines on loan origination and monitoring.
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In addition, detailed provisions should be introduced for specific products, as in the case of vendor leasing, where the second level check on the credit risk assessment would be in any case granted according to the principle established by the GL.
As an example, in small ticket leasing, vendor programmes often exist where a “four eyes” principle is applied to grant an independent judgment of credit risk. The risk management function evaluates the risk assessment and the commercial function takes the final decision on the basis on both client creditworthiness and business evaluations.
The requirements listed in Annex 1 and Annex 3 would be too strict and hardly adaptable to the internal evaluation procedures.
Also, among the definitions in § 17 of the Guidelines, new credit exposures are introduced which are different from those treated in the CRR and they are not clearly defined. As an example, it is not completely clear at what extent exposures towards consumers and professionals are to be considered different from retail exposures. Further clarifications should be provided regarding the definition of “professionals” and “consumers” introduced in GL.
As a general overview, the monitoring requirements on immovable and movable property collateral are already defined in the CRR and more stringent criteria were introduced in the EBA GL for NPE. Further requirements in these GL could result to be burdensome.
Specifically, performing full appraisals for revaluation purposes as set out in paragraph 213 instead of the current desktop (mainly) or drive-by (negligible) ones, would significantly increase the appraisals’ annual cost, as well as delivery time could be delayed.
In addition, these guidelines consider assets used by the owners for conducting their business within the scope of Commercial Real Estate (CRE) and not in Real Estate business. Although criteria for evaluating RE professionals (pure CRE counterparties) are very different from the ones to be used for evaluating the granting of credit lines collateralized by RE assets to companies operating in other businesses. We suggest including only professionals specialized in RE activities in the CRE.
5. What are the respondents’ views on the requirements for governance for credit granting and monitoring (Section 4)?
---6. What are the respondent’s views on how the guidelines capture the role of the risk management function in credit granting process?
The role of the risk management cannot be strictly defined, regardless the size of the organisation nor the nature of the financial activity. In this perspective, the requirements set out in §82 could be perceived as very intrusive as regards the human resource policies of institutions, in requiring precise criteria for variable remuneration policies of the staff in charge of credit granting.In addition, detailed provisions should be introduced for specific products, as in the case of vendor leasing, where the second level check on the credit risk assessment would be in any case granted according to the principle established by the GL.
As an example, in small ticket leasing, vendor programmes often exist where a “four eyes” principle is applied to grant an independent judgment of credit risk. The risk management function evaluates the risk assessment and the commercial function takes the final decision on the basis on both client creditworthiness and business evaluations.
7. What are the respondents’ views on the requirements for collection of information and documentation for the purposes of creditworthiness assessment (Section 5.1)?
The proposed use of the proportionality principle is to be challenged. For instance, small amount leases cannot possibly refer to the same GL as those concerning large amount credits in project finance.The requirements listed in Annex 1 and Annex 3 would be too strict and hardly adaptable to the internal evaluation procedures.
Also, among the definitions in § 17 of the Guidelines, new credit exposures are introduced which are different from those treated in the CRR and they are not clearly defined. As an example, it is not completely clear at what extent exposures towards consumers and professionals are to be considered different from retail exposures. Further clarifications should be provided regarding the definition of “professionals” and “consumers” introduced in GL.
8. What are the respondents’ views on the requirements for assessment of borrower’s creditworthiness (Section 5.2)?
---9. What are the respondents’ views on the scope of the asset classes and products covered in loan origination procedures (Section 5)?
---10. What are the respondents’ views on the requirements for loan pricing (Section 6)?
---11. What are the respondents’ views on the requirements for valuation of immovable and movable property collateral (Section 7)?
A dedicated section referring specifically to leasing activity would be necessary. In the case of leasing, whereby creditors own the financed assets, all contracts rely on the ability of the lessor to dispose of the asset in case of non-payment of the loan. The property of the asset by the creditor is the main feature of a lease, and a central parameter for credit risk analysis and creditworthiness assessment.As a general overview, the monitoring requirements on immovable and movable property collateral are already defined in the CRR and more stringent criteria were introduced in the EBA GL for NPE. Further requirements in these GL could result to be burdensome.
Specifically, performing full appraisals for revaluation purposes as set out in paragraph 213 instead of the current desktop (mainly) or drive-by (negligible) ones, would significantly increase the appraisals’ annual cost, as well as delivery time could be delayed.
In addition, these guidelines consider assets used by the owners for conducting their business within the scope of Commercial Real Estate (CRE) and not in Real Estate business. Although criteria for evaluating RE professionals (pure CRE counterparties) are very different from the ones to be used for evaluating the granting of credit lines collateralized by RE assets to companies operating in other businesses. We suggest including only professionals specialized in RE activities in the CRE.
12. What are the respondents’ views on the proposed requirements on monitoring framework (Section 8)?
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