The European Central Bank (ECB) has published draft guidance to banks on how they should tackle non-performing loans (NPLs). The ECB has highlighted credit risk and heightened levels of non-performing loans as key risks facing euro area banks. Through its supervisory work the ECB has identified a number of best practices as regards NPLs that it deems useful. These have been set out in draft guidance that the ECB has now published which will ultimately constitute ECB banking supervision’s supervisory expectation. The draft guidance contains predominantly qualitative elements and the intention is to extend the scope based on the continuous monitoring of developments related to NPLs.

The draft guidance follows the life cycle of NPL management:

  • chapter 2 sets out the supervisory expectations on NPL strategies;
  • chapter 3 outlines NPL governance and operations;
  • chapter 4 outlines important aspects for forbearance treatments;
  • chapter 5 sets out NPL recognition;
  • chapter 6 sets out qualitative guidance on NPL provisioning and write-offs; and
  • chapter 7 addresses collateral valuations.

View ECB consults on guidance to banks on non-performing loans, 12 September 2016