On 15 September 2025, the European Central Bank (ECB) issued a public consultation on a draft guideline for a harmonised supervisory approach to the coverage of non-performing exposures (NPEs) held by less significant institutions.
Background
While NPE ratios have, on average, decreased significantly since the launch of European banking supervision, some less significant supervised entities (LSIs) have shown slower progress in managing their stocks of legacy NPEs. Large stocks of NPEs can pose a significant risk to banks and financial stability more generally. As those stocks constitute lasting sources of potential further losses and restrict banks’ capacity for new lending, ensuring that banks make progress in reducing them, or in mitigating the associated risks, is pivotal to supervisory efforts to enhance LSIs’ resilience.
By consulting on and publishing the draft guideline, the ECB aims to ensure transparency regarding the harmonisation of supervisory practices and the consistent application of high supervisory standards for banks under the Single Supervisory Mechanism.
Guideline
The draft guideline sets out supervisory expectations which Member State competent authorities (NCAs) will apply on a case-by-case basis to those LSIs particularly exposed to risks from legacy NPEs that were originated before 26 April 2019. These NPEs fall outside the scope of the deduction requirement under the Capital Requirements Regulation applicable to NPEs originated after that date. NCAs are expected to assess whether LSIs cover potential credit losses on those NPEs via provisions or other risk mitigants. Given that average recoverable amounts decrease materially over time, NCAs will consider the NPE’s vintage, i.e. the number of years since the exposure was classified as non-performing.
Next steps
The deadline for comments on the consultation is 27 October 2025.
ECB will subsequently publish the comments received, along with a feedback statement on the public consultation and the final guideline.