On 18 June 2018, the European Banking Authority (EBA) published its 2017 Annual Report providing an account of its work in the past year and anticipated areas of key focus in the coming years.
Key areas of focus for 2018 include:
- for credit risk – defaulted exposures, the definition of default, the use of global models and interaction with country specificities for exposures with counterparties from different jurisdictions and unjustified differences between regulatory approaches and possible compensation effects between internal approaches;
- for market risk – accentuated pricing variability for equity derivatives, commodities trades and credit spreads products, the materiality of risk factors not in value at risk and the consistent representation of the migration effects for incremental risk charge on a low credit spread rates environment;
- non-performing loans (NPLs) – the EBA’s aim is to enhance the common framework for NPLs, with the introduction of guidelines on non-performing exposure management and loan origination, monitoring and internal governance, and improved disclosure requirements for NPLs;
- non-performing and forborne exposures – the EBA will issue guidelines that will apply to all credit institutions in the EU;
- loan origination, monitoring and internal governance – the EBA will prepare guidelines that will set the requirements for loan origination policies and procedures, creditworthiness assessments, and monitoring and internal governance;
- enhanced disclosure requirements – the EBA will implement guidelines on enhanced disclosure requirements on asset quality and non-performing loans to all banks;
- stress test – the EBA will conduct an EU-wide stress test exercise in 2018. In this exercise, the banks involved will apply two scenarios – the baseline and adverse – as a combined outcome of foreign demand, financial and domestic demand shocks in the EU. The stress test will include a higher degree of severity than in previous years. In particular, the deviation of the EU real GDP under the adverse scenario will be more significant; and
- transparency exercise – the EBA will conduct an EU wide transparency exercise along with the above stress test. The data disclosure will follow the same standards of previous years, with the exception of sovereign exposures data, which will have more granularity.