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The Guidelines specify sound risk management practices for credit institutions for managing NPE and FBE, looking at the governance and operations of a NPE workout framework, the internal control framework and NPE monitoring, as well as early warning processes.
The Consultation paper asks for views on the threshold for assessing high NPE banks noting that credit institutions with elevated levels of NPEs, measured as a NPL ratio of 5% or above, should establish a NPE strategy and related governance and operational arrangements. Effective governance covers all responsibilities that banks have, including treating customers fairly.
The Consultation Paper also sets out requirements on processes to recognise NPEs and FBEs, as well as a forbearance granting process with a focus on the viability of forbearance measures. On the latter, the Consultation paper suggests that forbearance measures should be granted only when they aim to restore sustainable repayment by the borrower and are thus in the borrower's interest. Credit institutions are expected to monitor efficiency and effectiveness of forbearance measures and have in place policies and processes to assess borrowers' financial difficulties and identification of NPEs.
Finally, the Consultation Paper sets out requirements for competent authorities' assessment of credit institutions' NPE management activity as part of the Supervisory Review and Evaluation Process (SREP).
Responses to this consultation can be sent to the EBA by 8 June 2018. A public hearing will take place at the EBA premises on 25 April 2018 from 11:00 to 12:30 UK time.