Regulatory pressures mount on all EU banks to address their non-performing exposure issues.
In July 2017, the EU Council announced an Action Plan to tackle the large overhang of Non-Performing Exposures (NPEs) which threaten the health of the Banking Union. This Action Plan includes several initiatives to be implemented in a short timeframe (mostly by the end of 2018). The proposed Guidelines issued in March 2018 by the European Banking Authority (EBA) for the management of nonperforming and forborne exposures contribute to this Action Plan.
Although the EBA aims to finalise the Guidelines by January 2019, banks should already start identifying any gaps in their NPE strategy, governance and operations against the Guidelines. All banks will need to address these gaps in policy and procedure, including the governance and operations of NPE recognition, impairment measures and write-off procedures, policies and procedures for the valuation of movable or immovable property collateral for NPEs, and the governance and operations of forbearance measures and processes.
The Guidelines are very similar to the European Central Bank's (ECB) guidance to banks on non-performing loans that was finalised a year ago. Therefore, banks supervised by the ECB will already be familiar with the substance of the EBA's Guidelines. However, the Guidelines will apply to all (over 6,000) credit institutions (hereafter "banks") in the EU.
This paper analyses the content of the EBA Guidelines and outlines what banks should do to prepare adequately for their implementation, while taking into account other recent initiatives that are likely to have a substantial impact on EU banks as they tackle the newly introduced Guidelines.