Revised NPL data templates are overly detailed

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.