KPMG have been selected for a project, mandated to the EBA, to identify data requirements for NPLs subject to sale by banks, in the form of a standardised data template.
In September 2017 the European Banking Authority (EBA) initiated a project for identifying data needs for non-performing loans (NPLs) subject to sale by banks. The output will be standardised data templates that can be used by EU banks for NPL transactions. This is expected to better align expectations between banks and investors, speed up the sales process and ultimately help close the pricing gap.
We are proud to announce that KPMG’s Portfolio Solution Group (PSG) was selected to support the EBA with delivering this important project. PSG was selected on the basis of its extensive experience and best in class approach with assisting banks and investors across Europe with data preparation for NPL transactions.
Inadequate and incomplete data remain one of the main causes of pricing gaps between the banks’ asks and the investors bids for NPLs. Too often, information asymmetry inhibits interests from investors in the first place, creates important gaps between indicative and binding bids (i.e. post due diligence), create delays, and bring extra risk appreciation for investors, ultimately dictating heavy discounts.
The need for banks to clearly identify and gather relevant data in preparation to NPL sales has been identified as a priority by the European regulators for the development of sound NPL markets in Europe. As a result, the European Commission as asked the European Banking Authority (EBA) to help resolving this issue with developing series of NPL data templates that can be used by EU banks.
“An improved quality, scope, transparency and availability of relevant financial information on distressed assets could greatly contribute to functioning secondary markets for distressed assets, as buyers would face less uncertainty, and this should lead to narrower bid-ask spreads”
European Commission’s Vice President, Valdis Dombrovskis
For this project, KPMG’s Portfolio Solution Group (PSG) will use its extensive experience with NPL transactions to support EBA with harmonizing and smartening data fields’ requirements for NPL sales and to construct a standardised framework for banks to report loans and collaterals information to investors. Inputs from other industry experts will also be gathered to ensure that the ultimate outputs are practical, complete and useful.
The final product will be pan-European, multi-asset class templates that will be provided by the EBA to EU banks and the industry that can be used as a new standard for “base” data requirements for NPL sales.
Banks are assumed to gather data in two levels with these templates:
1. Data templates for portfolio screening.
This data will have a dual purpose:
a. To support the bank to perform an informed internal strategic option analysis, and
b. To allow provide potential buyers with the investment teaser to assess if the subject portfolio is of interest.
2. Templates with Financial Due Diligence (FDD) data fields.
This will consist of highly granular data sets to address the needs of potential bidders to perform (1) the assessment for the indicative bid and (2) support the due diligence for the final binding bid.
These “new” data requirements will also be correlated to existing regulatory data requirements from banks to ensure alignment and avoid work duplication for banks.
This significant project is hoped to change the way banks prepare for NPL sales and save tremendous time to the process. It is expected to remove the prospect of uncertainty in future NPL disposals for investors, banks, and regulators. Moreover, investors will be in a better position to anticipate what the format and content of data they will received and identify early on any potential adjustments required for case specific particularities.
Over the years, PSG has provided pioneering advice on the NPL sale processes across Europe. This has established an all-encompassing library of data fields across multiple jurisdictions and asset classes to be used as a platform of information to leverage. We have become a market leader for NPL transactions in Europe.