Article

The European Banking Authority Final Guidelines on Loan Origination and Monitoring

The European Banking Authority (EBA) published its final Guidelines on Loan Origination and Monitoring on the 29 May 2020.

The European Banking Authority (EBA) published its final Guidelines on Loan Origination and Monitoring on 29 May 2020. The final Guidelines form part of the response to the European Union’s Action Plan regarding high levels of non-performing exposures witnessed throughout the global financial crisis (GFC) with non-performing loan (NPL) ratios remaining at pre-GFC levels in some countries at present.

The Guidelines were published much later than anticipated which reflects the depth of requirements and the volume of consultation comments provided by industry. Given the changes, even banks who have already adjusted their loan origination and monitoring process to meet the draft Guidelines will have some distance to travel to meet the updates outlined in the final Guidelines.

The objective of the Guidelines, which differ significantly in some aspects to the previously published draft Guidelines issued 19 June 2019, is to:

  • Further improve institutions’ practices and governance to ensure effective management and monitoring throughout the loan cycle;
  • Prepare banks for challenges around specific Sustainability and Fintech considerations; and
  • Improve profitability by ensuring that newly originated loans are of highest credit quality while respecting and protecting the interests of consumers.

It is worth noting that the European Central Bank (ECB) is also strengthening their approach in this regard with a focus on credit underwriting being a supervisory priority for a second year in a row. The ECB’s report from 10 June 2020 outlines findings on the topic with further detailed analysis anticipated this year across areas of perceived heightened risk via onsite inspections and follow up actions.

In our latest article, we take a look at the five key focus areas within the guidelines and provide recommended steps. If you or your team wish to discuss in further details, please reach out to us to arrange.

Did you find this useful?