Managing non-performing loans (NPL): Bank of Italy has published the guidelines for less significant banks

The Bank of Italy has published a consultation document on its website concerning the guidelines that the less significant Italian banks are called to implement in managing their non-performing loans (NPLs).

The document contains indications which are consistent with the “Guidance to banks on non-performing loans” addressed to significant banks and published by the SSM, which contains best practices for managing NPLs. However, the document includes certain adjustments and/or modifications to consider the needs of simplifying the organizational structure of the less significant institutions, in applying the principle of proportionality. These guidelines essentially outline the supervisory authorities’ expectations regarding the management of the NPLs and are consistent both with the supervisory approach that the Bank of Italy has taken until now the and with the regulatory framework in force. The guidelines do not replace such existing framework, to which reference is made where necessary.

According to the document under consultation, the less significant banks shall:

• adopt a strategy aimed at optimising the management of NPLs; specifically, they shall provide operating management plans for short term NPLs (approximately 1 year) and medium/long term NPLs (approximately 3/5 years);
• involve their strategic supervisory body in drawing up and monitoring the management strategy of the NPLs;
• adopt provisions and safeguards which aim to ensure that the non-performing loans are managed promptly and appropriately; specifically, such provisions must regulate the allocation of responsibility in the various stages to the respective centre of responsibility and provide internal policies for transferring the NPLs from one centre to another;
• design adequate organisational procedures to timely adopt the most appropriate measures for classifying, assessing and managing non-performing loans;
• maximise efficiency for forbearance measures, promptly identifying the best solution in relation to each specific case;
• formalise criteria implementing the relevant supervisory provisions in matters concerning classification of debts and assessment policies of debts that should be as complete as possible;
• issue and formalise procedures to ensure that complete, updated and accurate assessments are available; and
• provide an appropriate database wherein relevant NPL data can be entered and managed.

The consultation will remain open until 19 October. The Bank of Italy reserves itself the possibility to supplement these Guidelines in 2018 with a view to similar initiatives that may be commenced in light of the “Council Conclusion” recently approved by ECOFIN.

Download the document