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The Guidelines specify sound risk management practices for credit institutions in their management of NPEs and forborne exposures (FBEs), including requirements on NPE reduction strategies, governance and operations of NPE workout framework, internal control framework and monitoring. The Guidelines are written from a prudential perspective, but are also mindful of the pressing needs related to consumer protection to ensure that consumers are treated fairly.
The Guidelines also set out requirements for processes to recognise NPEs and FBEs, as well as a forbearance granting process with a focus on the viability of forbearance measures. In particular, the Guidelines specify that institutions should grant forbearance measures only with the view to return the borrower to a sustainable performing repayment status and are thus in the borrower's interest.
The Guidelines introduce a threshold of 5% of gross NPL ratio as a trigger for developing NPE strategies and applying associated governance and operational arrangements. This threshold does not indicate an optimal level for NPLs and should not be considered as an automatic target to be used in credit institutions' NPE strategies but sets a prudential framework for stricter supervisory monitoring to guard against rising levels of NPEs.
Finally, the Guidelines outline requirements for competent authorities' assessment of credit institutions' NPE management activity as part of the Supervisory Review and Evaluation Process (SREP).
The Guidelines, which are addressed to credit institutions and supervisors, take into account the proportionality aspects in their implementation and, where applicable, provide concrete examples in relation to small and less complex institutions.