Jay! EBA publishes standards on NPL, Forbearance, and AQR

The European Banking Authority (EBA) released today its final technical standards on supervisory reporting on Non-Performing Exposures and Forbearance, which will provide consistent indicators of asset quality of banks across the European Union. The EBA also issued recommendations on asset quality reviews (AQRs) aimed at supporting existing and/or planned reviews across the EU. See link to press release page: here.

Note the two addenda:  Annex I [xlsx 58KB] Annex II [xlsx 63KB].

From the summary: “The definition of forbearance builds on existing accounting and regulatory provisions and encompasses transactions that are generally regarded as forbearance in most of the accounting and regulatory frameworks considered by the EBA in the preliminary mappings it conducted, but also other transactions that qualify as forbearance based on the EBA’s views.

As for the definition of non-performing exposures, it builds on the definitions of impairment and default according to International Financial Reporting Standards (IFRS) and Regulation (EU) No 575/2013 (CRR), while being broader than these notions with the setting of common identification and discontinuation criteria (90 days past-due) to serve as a more harmonised asset quality indicator across Europe. …

The proposed forbearance and non-performing exposures definitions apply to all loans and debt securities that are on-balance-sheet. The draft definitions in the final ITS however do not apply to held for trading exposures, unlike the draft definitions that were consulted upon. All off-balance-sheet items (financial guarantees given, loan commitments given and other commitments) are covered by the definition of non-performing exposures, and some off-balance sheet commitments are also covered by the forbearance definition.

… these definitions rely on the existing concepts of impairment and default. Rather than superseding these concepts, they will supplement them by acting as harmonised asset quality indexes for assessing the classification of exposures. In particular, the impairment and default definitions keep their relevance, for estimating incurred losses and their coverage by impairment allowances, or for computing risk-weights or capital requirements. As the definitions of default and impairment have not been modified, this harmonisation will not have a direct impact on reporting institutions’ profitability or capital requirements and ratios.”