Grant Thornton’s headline views of the new EBA Guidelines on Loan Origination and Monitoring are summarised below. In addition, we have set out the key requirements, expected impact and associated timelines that Banks should focus on, including potential next steps.
Standardisation of existing approaches
The new guidelines include a set of requirements that should largely exist in banks with mature and sophisticated approaches to credit granting and risk management. In short, there is nothing – in principle – that banks shouldn’t already be doing. Notwithstanding this, the guidelines standardise such requirements and create a yardstick to be measured against.
Akin to BCBS 239
These guidelines are both enterprise wide and interdependent. Much like with the introduction of BCBS 239, which largely codifies actions and processes that banks should have in place in any case, changes tend to have impacts on dependent or reliant areas (e.g. IT systems on credit processes). That being said, like BCBS 239, the detailed requirements have meant cross-organisational initiatives are required to ensure all existing, and any future activities mean that compliance can be assured.
Back book versus front book
In our view, the most significant challenge for banks will be implementing the back book requirements called out in the guidelines. In particular, the commercial difficulty of gathering retrospective data and information for aged loans will require pragmatic and business led solutions, supported by risk expertise and insights.
Front line implementation
It is likely that regulatory authorities will expect that the implementation of these guidelines will best be delivered - from strategic, risk management and 3LOD perspectives – by the front line, in conjunction with input from the second line of defence functions. It is also our view that such projects typically are more successful when the business units lead, with greater buy-in, input and ultimately delivery.
The guidelines cover the end-to-end loan origination and monitoring requirements, and specify the internal governance arrangements for Banks in relation to the approval and monitoring of credit facilities.
Below are some of the key areas in which the newly introduced EBA guidelines are expected to impact the lending organisations:
Based on our direct working knowledge of the Irish Banking Industry we would foresee that the following areas should be of focus. We have outlined our initial views of the impact assessment for each area of focus.
The EBA guidelines will impact on Banks governance, credit risk processes, data, IT infrastructure, methodologies, lending practices and client interactions. Banks should therefore ensure that they are in a position to comply with the guidelines and timelines as outlined below.
Expectations and next steps: