Review of the EBA SREP Guidelines

We welcome both the decision to update the Supervisory Review and Evaluation Process (SREP) Guidelines and the overarching objectives to increase convergence of practices across the EU and to align with other relevant EBA Guidelines. Nevertheless, the draft version of the Guidelines contains specific provisions that go further than the EU Directive (CRD). In addition, the fact that the scope of provisions set out in the Guidelines has been expanded yet again gives rise to fears that proportionality aspects under Pillar 2 will be pushed further into the background.


Proposal for a Regulation on European green bonds

Proposal for a Regulation on European green bonds

Establishing a European green bond standard (‘EUGBS’) was an action in the Commission’s 2018 action plan on financing sustainable growth and is part of the European Green Deal.

The European Commission adopted its proposal for a EUGBS in July 2021 and later launched a public consultation. In this context, ESBG has recently finalised a position paper that indicated some of the main concerns with the adopted proposal.


BRAC Uganda working in Covid times

Maintaining customer and investor confidence during Covid

Improved liquidity position allows financial service providers to focus on pandemic recovery

The Covid-19 pandemic is the latest crisis that is putting pressure on financial service providers (FSPs) globally. Lockdowns and regulatory moratoriums on loan repayments, together with a lower business activity are putting serious constraints on FSP’s liquidity positions. Early in the Covid pandemic, there was widespread concern that liquidity constraints could wipe out many of the financial institutions that serve low-income customers and small- and medium sized enterprises.

Two recent reports issued by CFI/e-MFP and CGAP point to the vital importance of managing liquidity in the midst of a crisis. After all, the quickest path to failure of an FSP is running out of cash. Available liquidity should be used to retain the confidence and trust of both customers and creditors while continuing to operate and paying staff.  Once stability is achieved, an FSP can start its recovery, but this cannot be achieved without retaining the confidence of customers, investors, staff, and the regulator.

Evidence of successful crisis response

Scale2Save is a partnership between WSBI and the Mastercard Foundation to establish the viability of small-scale savings in six African countries. To analyse the impact of the Covid crisis on the liquidity profile of our partner FSPs, we compared the pre-crisis liquidity position at end of year 2019 with that at end of 2020 when a cautious and gradual recovery of the Covid pandemic had set in. Across our programme partners, we collected liquidity gap reports from four banks and three deposit taking microfinance institutions in four countries: Ivory Coast, Nigeria, Morocco, and Uganda.

Liquidity risk arises from both the difference between the size of positions of assets and liabilities and the mismatch in their maturities. When the maturity of assets and liabilities differ, an FSP might experience a shortage of cash and therefore a liquidity gap. A liquidity gap report profiles assets and liabilities into relevant maturity groupings based on contractual maturity dates and is an important tool in monitoring overall liquidity risk exposure. A liquidity gap report is a standard disclosure included in audited financial statements of our project partner institutions.

Increased customer deposit balances

All partner financial institutions increased their customer deposit volume at the end of 2020 compared to pre-Covid crisis level. Perhaps more importantly, they also mostly managed to increase the proportion of customer deposit funding as part of total liabilities, as seen in the graph below.

The partner banks seem to have been more successful in increasing deposit volume compared to microfinance institutions. However, caution needs to be taken in generalising this conclusion as country and institution specific factors are also at play.

Lower dependency on borrowed funds

International creditors have been very supportive to banks and microfinance institutions during the Covid crisis, granting waivers for breaches of loan covenants, providing for temporary suspensions of interest and loan repayments, restructuring of loan terms and new financing. However, given the ample liquidity available from customer funding and the higher cost associated with international borrowings and debt issuance, most partner institutions chose to run-off these borrowings during 2020 lowering the proportion of borrowings in the funding mix. The average maturity of outstanding debt dropped as a result, as the following graph reveals.

Improved liquidity profile

The maturity of customer loans and advances increased during the crisis due to loan moratoriums and the related rescheduling and restructuring. The loan maturity loan terms of all partner FSPs extended, with one example of a 216% increase, seen below, in the case of an institution which generally has extremely short loan maturities.

On the liability side, contractual maturities of funding decreased for all partner FSPs, except one.  This was mainly the result of international borrowings that expired or that were not rolled over.

When considered from the perspective of contractual maturities, the combination of lengthening loan terms and shorter funding maturities would suggest a worsening of the structural liquidity position of an FSP. However, the anticipated maturity of retail customer current accounts, security and savings deposits is often much longer than their contractual maturity, when taking into account the behavioural characteristics of a large and diversified pool of individual accounts that exhibit “stickiness”. Only a proportion of these retail customer balances will be drawn down on contractual maturity date and the entire pool provides a more stable, long-term source of funding.

This point can be illustrated with reference to the international liquidity standards issued by the Basel Committee on Banking Supervision for the calculation of expected cash outflows for two key liquidity risk indicators, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The Basel standards assume that between 3% and 10% of retail deposits[1] would actually run-off over the next 30 days under an adverse liquidity scenario. The corollary of this is that 90-97% of retail deposit funding can be considered to be stable in nature and of longer duration. As short-term customer account funding (<30days) of our partner institutions make up a significant proportion of the total customer funding (between 30% and 90%), a large part of these funds can therefore be considered as “core” and provide a stable funding base to compensate for the extended loan maturities from Covid impacted loan rescheduling.

The Basel global liquidity standards are meant as guidance and FSPs operating in less developed markets and more volatile environments may experience higher deposit run-off rates in case of liquidity stress.  Nevertheless, a significant proportion of our partners’ customer account and savings balances can be considered as stable.

Institutional resilience in face of the Covid crisis

At the outset of the Covid crisis, our partner institutions invoked their pandemic crisis management plan and took protective measures for customers and staff to prevent infection and transmission.  Partner institutions granted credit relief to borrowers in the form of loan moratoriums in line with regulatory forbearance measures.  Digital access to customer accounts was stepped up, so customers could meet household consumption expenditure during the lockdown.

Our partners have withstood the liquidity stress induced by the Covid crisis and successfully retained the confidence of customers and investors.  With a cautious and gradual recovery from the Covid pandemic underway, FSPs can now focus on recovery steps higher up the hierarchy of financial institutions crisis management needs.  These needs were described in the CFI/e-MFP report in the following order of priority: liquidity, confidence, portfolio and capital.

With stability restored, FSPs can now shift their recovery efforts to managing the loan portfolio by balancing collections of overdue loans with the need to continue lending to reliable low-income customers and small- and medium-sized enterprises and maintaining capital adequacy levels when Covid-related regulatory forbearance measures will expire.

Through surveys and case studies the Scale2Save programme continues to investigate the driving factors that influence the different outcomes of Covid crisis management.

A blog published on the European Microfinance Platform (e-MFP). To read the original version (including graphs) visit this page.


For transparent and efficient NPLs secondary markets

The additional disclosure requirements will not necessarily increase the efficiency of secondary markets for Non-Performing Loans (NPLs). The proposed solutions, such as the mandatory NPLs templates and the establishment of an EU Data Hub, bring additional complexity, costs and efforts to all market participants.

BRUSSELS, 9 September 2021 – The European Savings and Retail Banking Group (ESBG) replied yesterday to the European Commission’s targeted consultation on improving transparency and efficiency in secondary markets for Non-Performing Loans (NPLs).

With this consultation, the Commission wants to be informed on the remaining obstacles to the proper functioning of secondary markets for NPLs as well as actions that it could take to foster these markets by improving the quantity, quality and comparability of NPL data. The consultation will also enable the Commission to decide on whether EU coordinated action and/or policy measures would be taken. This in order to limit market failures in terms of information asymmetries, to increase market liquidity, to lower bid/ask spreads and hence to enable more efficient NPL markets.

From ESBG’s perspective, the statement that an increase of market transparency would have a positive impact on the efficiency of NPL secondary markets is not necessarily true. The proposed data structure of the revised NPL templates is in fact too wide, including a lot of non-essential data. This would make it more time consuming for investors to conduct operations on the NPLs market.

For those reasons, ESBG does not support the obligation to provide data on NPLs, especially not for low NPL banks (with an NPL ratio lower than 5%) who have no or little need to sell NPLs. It would make neither economic sense (the costs will surpass the benefits), nor would it materially support the build-up of an NPL trading market (as low NPL banks would not contribute to it). Furthermore, it would be against any proportionality consideration with regards to NPL size.

About the proposal for the establishment of an EU Data Hub for NPLs, ESBG would like to highlight that the information disclosure via Pillar 3 has been reinforced recently with heightened requirements for high-level NPL entities. These entities already provide all the relevant information they have, to get the best possible price. EBA NPL templates will further increase standardisation of NPL data.

ESBG believes that the risks of leaks of information largely outweighs the potential benefits of increased transparency. Even if data is anonymised, names of distressed companies could be identified, which could have very serious consequences, notably for firms that are still viable but whose debt one bank wants to sell, while other banks may not have recognised it as a non-performing counterpart.

Furthermore, there are many intangible parameters that have an impact on the price and purchase/sales volumes that cannot be collected in a Data Hub. Therefore, a partial analysis of the information provided could lead to infer wrong and undesirable conclusions.

In this context, the obligation to provide data on NPLs would not consider the role of all involved market participants and thus may have a negative impact for some of them – like the templates provide huge administrative burdens on the seller side but do not provide any incentive for buyers.

What must be pointed out is that the lack of a single NPL market is evident, amongst other factors, due to the differences in national insolvency laws and in jurisdictional systems. NPL markets work very differently across EU countries and the creation of a pan-EU Data Hub would not help NPL markets function any better.

ESBG members have a high level of operational readiness to deal with the increase in NPLs, when (and if) the need emerges. Accordingly, ESBG firmly believes that banks – or at least low level NPL banks – should rather be given the discretion to decide on the use of the NPL data templates even in their revised format in case of a sale. As sellers of NPLs, it is in the interest of banks to disclose relevant information in line with the characteristics of the product. Establishing a data hub with standardized data for all market participants could even reduce the liquidity and depth of the NPL secondary markets.

In conclusion, while understanding the rationality of aiming at increasing market transparency, ESBG believes that a solution should be implemented without bringing any additional complexity, investments and effort to all involved, using existing regulatory and legal framework and IT infrastructure.




ESBG response to consultation on Pillar 3 disclosure of IRRBB

ESBG proposes to further delay the disclosure of the net interest income (NII) risk measures until the EBA requirements for these NII risk measures are specified.

BRUSSELS, 3 September 2021 – The European Savings and Retail Banking Group (ESBG) replied on 30 August to the European Banking Authority (EBA) consultation on draft implementing technical standards (ITS) on Pillar 3 disclosures regarding exposures to interest rate risk on positions not held in the trading book (IRRBB).

The draft ITS puts forward comparable disclosures for stakeholders to assess institutions’ IRRBB risk management framework as well as the sensitivity of institutions’ economic value of equity and net interest income to changes in interest rates. The proposed standards will amend the comprehensive ITS on institutions’ public disclosures, in line with the strategic objective of developing a single and comprehensive Pillar 3 package that should facilitate implementation and further promote market discipline.

ESBG believes that the approach chosen by the EBA for the development of the draft ITS is quite problematic due to the lack of a definition for net interest income (NII) metrics.

The disclosed NII metrics may not be comparable as long as the EBA does not define what it understands by these NII metrics. Moreover, it is very likely that future disclosed NII metrics will be based on different methodologies. Optimally, the methodological requirements for the calculations would be clarified by the EBA before the banks would be forced to disclose the calculated results. If this is not feasible, a clarification that banks may use internal metrics for disclosure until further notice would help.

In other words, the current chronological order of the published standards shows potential for conflict. We understand the EBA’s efforts to create as much clarity as possible for disclosure in a timely manner. However, for understandable reasons, the EBA has not yet defined the requirements under Article 98(5a) CRD to be applied to the metrics to be disclosed. That is why we strongly oppose the EBA’s expectations of institutions to apply the present draft before it enters into force.

Instead, ESBG proposes to further delay the disclosure of NII risk measures until the EBA requirements for these are specified.




Call for all lenders to be equally supervised under Consumer Credits Directive

BRUSSELS, 3 September 2021 – ESBG responded to the European Commission’s public consultation on its proposal for a Directive on Consumer Credits on 30 August. In their response, ESBG members call on the Commission to broaden the scope of the definition of ‘lender’ to any kind of lender (including platforms) to ensure all are supervised at the same level for the same lending activities (including non-banks).

ESBG also calls for keeping the 200 EUR threshold for the lower limit of the scope, as a smaller amount would incur high processing costs disproportionate to the return (and the same can be said for short-term loans of less than three months).

The Commission announced the draft text of the proposal on 30 June. The previous Consumer Credit Directive (CCD), dating from 2008, does not consider recent developments which have a wide impact on credit loans, such as digitalisation. It also overlaps with other legislative texts which have since been updated. These changes should be reflected in the CCD text.

On the required information, ESBG members welcome the Commission’s proposal to provide consumers with simplified, streamlined pre-contractual information. They are concerned, however, that the newly proposed one-pager (SECCO) might actually be in addition to the existing SECCI. If so, this would go against the goal of reducing the information overload on the consumer. As a solution, ESBG believes that the SECCO should be an alternative to the SECCI, and not an addition. We also call on the Commission to embrace digitalisation by allowing information to be provided via a computer or tablet, and not interpret ‘durable medium’ to mean strictly printed paper.

In addition, regarding the creditworthiness assessment, ESBG considers that it should be proportional to the type of credit. The creditworthiness assessment should not be the same, for example, for short-term overdrafts and a considerable loan. In the case of payment in few instalments, the consultation of a database of unpaid credits could be sufficient to grant credits of small amounts and of a duration of less than three months, and this consultation should become compulsory.




Revised NPL data templates are overly detailed

The revised NPLs data templates are overly detailed and impose more costs than benefits to banks and investors.
They should not be mandatory, at least not for banks with low levels of NPLs.

BRUSSELS, 3 September 2021 – The European Savings and Retail Banking Group (ESBG) replied to the European Banking Authority (EBA) consultation on the review of the standardised data templates for Non-Performing Loans (NPLs) on 31 August.

The current revision of the templates is based on the user experience and feedback from various market participants. The revision responds to the European Commission’s Communication on tackling NPLs in the aftermath of the Covid-19 pandemic (December 2020) that, amongst others, requests the EBA to review the templates based on a consultation with market participants. The objective of this revision is to make the voluntary data templates simpler, more proportional and effective. It also aims to make them available to all market participants by the end of 2021. According to the authorities, this should play an important role in providing a common basis for data exchange in secondary markets.

From ESBG’s perspective, the data templates are overly detailed and require information that either is not critical for purposes of loan valuations or is not currently or readily available. Some data fields go beyond what is relevant for portfolio valuation.

Furthermore, the potential mandatory implementation of NPL data templates does not consider the role of all market participants and thus may have a negative impact on some of them.

The proposal to require that the preparation of these templates shall be mandatory for low NPL banks (NPL ratio lower than 5%) is detrimental, in ESBG’s view. It would be neither necessary (low NPL banks have no or little need to sell NPLs) nor would it make economic sense (the costs will surpass the benefits), nor would it materially support the build-up of a NPL trading market (as low NPL banks would not contribute to it). Such measure would also go against any proportionality considerations.

Content wise, the templates have also several downsides. Despite a significant decrease of the data fields compared to the original 2017 templates, the remaining number is still high, and contains significantly more information than the current market standard. An additional difficulty is related to the availability of information and to the existing barriers imposed by confidentiality rules. All these, if made obligatory, will put additional pressure that would outweigh benefits from the bank´s perspective due to the need for increased engagement of resources.

In addition, it is also worth considering whether the revised templates (which are still too detailed and granular) would actually make it more time consuming for investors, particularly those new to the market, to conduct the valuation process, and whether this might have a detrimental rather than stimulating impact on the NPLs market.

In light of the above, ESBG firmly believes that banks (or at least low level NPL banks) should be given a discretion to decide on the use of the NPL data templates even in this revised format, rather than being obliged. ESBG members have in fact the required levels of operational readiness to deal with the increase in NPLs, when (and if) the need emerges.

In conclusion, while we understand the rationality of aiming to increase the market transparency by making available the NPL secondary market data, we recommend that the implementation solution should be done without bringing any additional complexity, investments and effort for all players, and using existing regulatory and legal framework and IT infrastructure. If the initiative will be continued, we propose to use the already existing Credit Bureaus EU infrastructure, at least for the retail segment, as an alternative solution which may fulfil the original objective and does not require new reporting requirements for the banks.




Banking sector calls for participation in development of EU e-ID Toolbox

BRUSSELS, 2 September 2021 – The European Credit Sector Associations (ECSAs), submitted joint feedback on 30 August to the European Commission’s initiative for an EU digital ID scheme for online transactions across the Member States.

The ECSAs include the European Banking Federation (EBF), the European Savings and Retail Banking Group (ESBG) and the European Association of Co-operative Banks (EACB).

The organisations welcome the Commission’s proposal, announced on 3 June, for a regulation establishing a framework for a European Digital Identity, as well as the high ambitions outlined in the initiative, which represent a positive development in the creation of a future-proof EU single digital market.

A European digital identity will make it possible to offer faster onboarding processes and improve customers’ user experience while ensuring the same level of security as face-to-face onboarding. The ECSAs believe that the proposal will ultimately contribute to facilitating the adoption of digital banking services.

The Commission proposal aims to provide an ecosystem of credentials leveraging a new wallet architecture of several ID solutions, which holds the potential to further increase innovation for the benefit of all European businesses and citizens. The proposed decentralised model fosters personal autonomy and increased personal data protection, giving users control over their identity attributes.

The ECSAs believe the proposal will incentivise the Member States to be more expedient in developing e-ID solutions with a wide scope of usage and potentially much higher adoption rates. It also provides grounds for some attributes to be validated against public sources. This is a welcome development, particularly in processes where a high level of assurance of these attributes is necessary, for example, the KYC process. When acting as relying parties, banks should be aware of the chain of trust in data sharing (including actors involved) and should be able to promptly check the validity of credentials.

Call for banking sector’s involvement in the Toolbox

The ECSAs appreciate the cooperation between the European Institutions, Member States and the private sector. Member States should cooperate in a coordinated manner towards a Common Toolbox. The European digital identity should build on existing (and upcoming) national notified e-ID solutions. The ECSAs believe that the banking sector should also be involved in the development of the Toolbox. Banks can be key partners in drafting a roadmap that ensures successful e-ID adoption given the wide scope of use cases and related implementation costs.

It will be key to establish a common technical architecture that enables the private sector to integrate any digital wallet developed within this regulatory framework without additional technical burden, regardless of where it is issued.

The ECSAs look forward to a Toolbox that is a common, openly available standard that enables the development of multiple, interoperable e-ID solutions and which incentivises private sector schemes to participate.

About the ECSAs e-ID Task Force

The ECSAs e-ID Task Force brings together experts from 36 financial institutions and national banking associations with the goal of expressing a common position for the whole sector on Digital Identity. The Task Force stands ready to further engage on the strategic issue of digital identity with the Commission, the EU co-legislators and a wide range of stakeholders both at European and national level.


The European Credit Sector Associations’ joint response to the Commission’s digital identity consultation