The European Central Bank (ECB) has published guidance on non-performing loans (NPLs).

The guidance follows the life cycle of NPL management. It starts with the supervisory expectations on NPL strategies, which closely link to NPL governance and operations. The guidance also outlines important aspects for forbearance treatments and NPL recognition. The guidance also covers NPL provisioning and write-off and collateral valuations.

The guidance is addressed to credit institutions within the meaning of Article 4(1) of the Capital Requirements Regulation (CRR). It is generally applicable to all significant institutions that are directly supervised under the Single Supervisory Mechanism (SSM), including their international subsidiaries. However, principles of proportionality and materiality apply. For example the chapters in the guidance on NPL strategy, governance and operations may be more relevant for banks with high levels of NPLs that need to deal with this extraordinary situation.

The guidance is currently non-binding in nature. However, banks should explain and substantiate any deviations upon supervisory request. The guidance will be taken into consideration in the SSM regular Supervisory Review and Evaluation Process and non-compliance may trigger supervisory measures.

The guidance does not intend to substitute or supersede any applicable regulatory or accounting requirement or guidance from existing EU regulations or directives and their national transpositions or equivalent, or guidelines issued by the European Banking Authority. The guidance is a supervisory tool with the aim of clarifying the supervisory expectations regarding NPL identification, management, measurement and write-offs in areas where existing regulations, directives or guidelines are silent or lack specificity.

The guidance is applicable as of its date of publication.

View ECB guidance to banks on non-performing loans, 20 March 2017