ECB issues a consultation on addendums to its NPL guidance

Interested parties have the opportunity to comment on a draft addendum to the ECB's NPL guidance

Banking alert | 25 October 2017

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The ECB issued its NPL guidance in March 2017, setting out requirements for high-NPL banks to submit a strategy for reducing NPLs.

On 4 October 2017, the ECB issued for consultation an addendum supplementing the guidance published in March 2017, seeking to reinforce guidance in relation to developing timely provisioning and write off practices.

Key developments

The addendum applies the following changes, to reinforce the aforementioned guidance:

  • European lenders will have two years to put in place “minimum levels of prudential provisions” for new unsecured NPLs, starting from 1 January 2018, or else will have to explain deviances from guidance to supervisors.
  • Full coverage is to be provided no later than seven years for secured NPLs, if the draft is adopted following the consultation.
  • The ECB requires that banks post collateral against new additions of NPLs, which will make it more expensive for banks to hold a stock of bad debt.
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