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Addendum to the European Central Bank guidance on NPLs

On 15 March 2018, the European Central Bank (ECB) published an Addendum to its ECB guidance to banks on NPLs following the public consultation which ran from October to December 2017.

The Addendum supplements the original NPL guidance of March 2017. It specifies the ECB’s supervisory expectations for prudent levels of provisions for new NPLs. Loans that are reclassified from performing to non-performing in line with the EBA’s definition after 1 April 2018, irrespective of their classification at any moment prior to that date are in scope. The Addendum is legally non-binding but will serve as the basis for supervisory dialogue between significant institutions and the Single Supervisory Mechanism (SSM).

In effect, the Addendum requires banks to hold a 100% provision for ‘newly classified NPLs’ where such exposures continue to be non-performing for two years in the case of unsecured exposures and seven years in the case of fully-secured exposures, introduced on a phased basis from the third year of non-performance.

Why Grant Thornton?

Grant Thornton has considerable experience on the topic of NPEs and the supervisory dialogue around such. NPL management is critical to for almost all Irish directly supervised SSM banks. Should you require any further information or advice in relation to the challenges of NPE management, please feel free to contact a member of the Financial Services Advisory team.