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Disclosure of NPEs and forborne exposures

NPEs and forborne exposures

The European Banking Authority (EBA) has published a consultation paper (PDF 609 KB)on the disclosure of non-performing exposures (NPEs) and forborne exposures.

The proposed disclosures take the form of ten templates linked closely to the EBA’s proposed guidelines (issued in March 2018) on the management of non-performing and forborne exposures.

The disclosures are intended to provide market participants and other stakeholders with a better picture of the quality of a bank’s assets and, in the case of more troubled banks, the distribution of problematic assets and the value of the collateral backing those assets.

The EBA intends to finalise these disclosure guidelines before the end of 2018. The guidelines would then apply from 31 December 2019.

Impact on banks

Some of the required disclosures may be costly for banks to prepare. However, banks will need to generate these data in order to meet the EBA’s NPE management guidelines and to meet enhanced supervisory reporting requirements.

Detail

The proposed disclosure guidelines are designed to be consistent with:

  • the technical standards developed by the EBA (2014) for the supervisory reporting of NPEs;
  • the reporting requirements contained within the European Central Bank’s NPL guidance (March 2017); 
  • the recommendation in the European Council’s Action Plan (July 2017) to enhance the disclosure of banks’ NPEs;
  • the EBA’s separate reporting templates (December 2017) to facilitate secondary market NPE transactions;
  • the EBA’s proposals (March 2018) on the management of NPEs and forborne exposures (see KPMG further insights: EBA’s Guidelines on non-performing and forborne exposures (PDF 1.61 MB)); and
  • new supervisory reporting requirements on NPEs being developed by the EBA.

All banks will be required to disclose the volumes and level of NPEs, forborne and foreclosed assets in their balance sheet. This includes the gross carrying amount, broken down by exposures class, of

  • performing and non-performing exposures, with a breakdown for past due exposures by the number of days that the exposures have been past due;
  • impairments, provisions, accumulated changes in fair value due to credit risk, accumulated partial write-offs, and collateral and financial guarantees received, for both performing and non-performing exposures, and further details on the stage of the exposures for IFRS banks; and
  • forborne exposures, the related accumulated impairment, provisions and/or changes in fair value, and the collateral and financial guarantees received.

All banks will also be required to disclose explanations of significant changes in these balance sheet items, and information on the value of the collateral obtained by taking possession of assets against NPEs and forborne exposures.

Significant banks that report high levels of non-performing loans will be required to disclose additional data on the distribution and features of their problematic assets, the quality and value of the collaterals backing them, and the efficiency of the bank’s recovery function:

  • breakdowns by geographical area and by the industry/sector of the counterparty of performing and non-performing exposures and the related accumulated impairment, provisions, and the accumulated change in fair value due to credit risk;
  • the number of times that an exposure has been forborne;
  • NPEs and forborne exposures that failed to meet the non-performing exit criteria;
  • changes in the gross carrying amount of NPEs during the period, with specific details on the recoveries related with these changes;
  • past-due and loan-to-value bucket breakdowns of the gross carrying amount of loans and advances collateralised, the related accumulated impairment, the value of the collateral/financial guarantees received and partial write-off for these exposures; and
  • the value and the related impairment of the assets cancelled in exchange for the collateral obtained by taking possession, the value and related impairment of the collateral obtained, and the vintage of foreclosed assets.

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