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


On 31 October 2018 the European Banking Authority (EBA) has published its final Guidelines on management of non-performing and forborne exposures.

The Guidelines, developed in accordance with the European Council Action Plan published on July 2017 and following a consultation period from 8 March to 8 June 2018, 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.

Looking at the Guidelines in more detail:

  • The Guidelines specify sound risk management practices for credit institutions in their management of NPEs and forborne exposures (“FBEs”), including requirements on NPEs reduction strategies, governance and operations of NPEs workout framework, internal control framework and monitoring.
  • 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 aim of returning 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 in accordance with the Guidelines.
  • Finally, the Guidelines outline requirements for competent authorities' assessment of credit institutions' NPEs and FBEs management activity as part of the Supervisory Review and Evaluation Process (SREP).

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

The Guidelines apply from 30 June 2019.

Download here EBA Guidelines.