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Guidelines on disclosure by credit institutions of non-performing, forborne exposures info

Guidelines on disclosure by credit institutions of non-performing, forborne exposures info

​​​​​​​ESBG (European Savings and Retail Banking Group)

Rue Marie-Thérèse, 11 - B-1000 Brussels

ESBG Transparency Register ID: 8765978796-80

​​Published: 27 July 2018

>> See ​.pdf version


Dear Sir/Madam,

Thank you for the opportunity to provide our feedback to the EBA consultation on its g​uidelines on disclosure by credit institutions of information on non-performing and forborne exposures. We would like to share with you the following reflections that we hope will be taken into account by the EBA.

 

General comments

As part of the CRR revision, the European Commission, together with the European Parliament and the European Council, recognised the need for relief for medium-sized and smaller institutions, in particular in the area of reporting and disclosure, and addressed this point accordingly. It therefore seems peculiar that, there is expected to be a significant reduction in disclosures for smaller/medium-sized institutions, but at the same time extensive new disclosure requirements are to be introduced.

In light of this, ESBG would like to stress that the proposed proportionality principle where institutions are divided between “significant" and “non-significant" is going to result in undue cost for the smallest institutions in the non-significant group. In this regard, we would suggest extending the proportionality threshold so that non-significant institutions with consolidated assets below EUR 1.5 billion have less disclosure requirements. Moreover, the disclosure requirements for institutions with assets below EUR 1.5 billion should, in our view, only consist of the overall NPL-ratio and the nominal NPL and NPE amount.

The proposed disclosure contents in the individual templates are very comprehensive. Article 442 CRR requires institutions to disclose information on credit risk adjustments. This also includes information on impaired and past due loans (Article 442(g) and (h) CRR). In addition, EBA Guidelines (EBA/GL/2016/11) require information to be disclosed on non-performing and forborne exposures. Therefore, ESBG believes that redundancies with regard to the disclosure of non-performing exposures should be avoided.

More specifically, ESBG believes that the proposed templates increase the reporting requirements on concepts that already disclosed in compulsory reporting. Forborne & defaulted exposures, collateral assessment, etc. are, in fact, currently being disclosed in Financial Reporting Framework (FINREP) and/or National Central Banks' templates with different content [Table. 1].

New templates require a great preparation effort and consistent reconciliation with similar ones. In this regard, from ESBG's perspective, it would be more efficient to define a unified template for FINREP, National Central Bank and public disclosure. Moreover, public disclosures should not include more information than reserved financial templates (FINREP).

 

Table. 1 – Issues with the proposed templates

 

Template

Issue

Similar FINREP template

Additional comment

1*

Credit quality of forborne exposures

F19

 

3*

Credit quality of non-performing exposures by past due days

F7

The excessively granular breakdown may difficult the understanding of the template. We propose the removal of the off-balance breakdown by exposure class.

4*

Performing and non-performing exposures and related provisions

F7 and F12

The excessively granular breakdown may difficult the understanding of the template. We propose the removal of the off-balance breakdown by exposure class.

5

Quality of NPE by geography

F20

 

6

Quality of loans and advances by industry

F6

 

8

Changes in the stock of NPLs and advances

F12

We suggest an equation of the outflow breakdown to the FINREP equivalent template.

 

*Applicable to all credit institutions.

 

Question 1: Could you provide your views on whether adding an “of which" column to column 'f' of template 1 - “Credit quality of forborne exposures", including the information on non-performing forborne exposures that are impaired (i.e. “of which impaired") would be useful?

ESBG believes that adding an “of which" column would not represent a significant contribution. Since collaterals are being broken down between performing and non-performing in columns “e" and “f" including an additional level of detail may be counterproductive since hinders the understanding of the information.

In case the column will be added, the same breakdown should be considered for the collateral columns as well.

 

Question 2: Could you provide your views on whether adding the columns with the breakdown of provisions for non-performing exposures by buckets of the number of days that the exposure has been past due to template 3 - “Credit quality of performing and non-performing exposures  by aging of past due days" would be useful?

​ESBG thinks that adding the columns with the breakdown of provisions for non-performing exposures would not represent a significant contribution to the comparability between companies. Every term bucket would include a heterogeneity of operations, moreover provisions are not calculated by terms but by models that use other variables.

​In case the columns will be added, we believe the breakdown of ageing buckets should be harmonized between EBA, the EU Commission and ECB to ensure comparability of the numbers, get a full picture and to avoid additional costs for implementation and reconciliation.

 

Question 3: Could you provide your views on whether the breakdown between “on balance sheet exposures" and “off balance sheet exposures" included in template 5 – “Quality of Non-performing exposures by geography" is useful?

​We believe that is suitable to distinguish between on-balance and off-balance positions to foster the comparability within other breakdowns and balance sheet reports.

 

Question 4: Could you provide your views on whether the information on loans and advances secured with immovable property with a loan-to-value higher than 60% and lower than 80% included in row 3 of template 7 – “Collateral valuation - Loans and advances at cost or amortised cost" is useful?

ESBG considers that only those with LTV higher than 80% are relevant to the public. In our opinion the 60-80% LTV bucket should be removed.

 

​Question 5: Do you agree with the overall content of these guidelines and with the templates proposed? In case of disagreement, please outline alternatives that would help to achieve the purpose of the guidelines.

With regard to the proposed templates, ESBG believes they increase the reporting requirements on concepts that already disclosed in compulsory reporting. Forborne & defaulted exposures, collateral assessment, etc. are, in fact, currently being disclosed in Financial Reporting Framework (FINREP) and/or National Central Banks' templates with different content [Table. 1].

New templates require a great preparation effort and consistent reconciliation with similar ones. In this regard, from ESBG's perspective, it would be more efficient to define a unified template for FINREP, National Central Bank and public disclosure. Moreover, public disclosures should not include more information than reserved financial templates (FINREP).

ESBG hopes that EBA will focus on harmonization when amending the reporting of NPEs and FBEs (FINREP), which is planned to be consolidated still in 2nd half of 2018.

​Additionally, we would like to ask for confirmation of our understanding respectively providing more details:

 

  1. In our understanding Template 7 contains only loans to customers at cost or at amortized costs as given in the definition but no loans which are measure fair value through P&L. Can you please confirm our understanding? 
  2. In Template 7 the amount in row 2 “of which: secured" is the capped amount of collateral as defined in Annex V of the Commission Implementing Regulation (EU) No 680/2014 as modified by Commission Implementing Regulation (EU) n°2017/1443 whereas the amount in row 8 “Collateral" is the uncapped amount of collateral. Can you please confirm our understanding?  
  3. In template 8, row 12 “Outflow due to risk transfers" is defined as gross reduction of non-performing loans and advances due to the securitization or other risk transfers qualifying for de-recognition from the balance sheet. Can you please provide references to CRR or examples for defining “other risk transfers qualifying for the de-recognition from the balance sheet"?    
  4. In Template 2 row 3 Non-performing forborne loans and advances that failed to meet the non-performing exit criteria is definite as gross carrying amount of non-performing forborne loans and advances that are in the perimeter of non-performing forborne loans and advances under probation of 1 year and failed to comply with the forbearance measures after the twelve months period of probation. Having in mind that the standard business practice (where exposures are treated as non-performing longer than 1 year to avoid re-defaults) as some Members States' law (e.g. Austrian law sets up a minimum of 3 years for private insolvencies), our understanding is that average period in default for the respective Institution should be considered. Can you please confirm our understanding?

 

​About ESBG (European Savings and Retail Banking Group)

​ESBG represents the locally focused European banking sector, helping savings and retail banks in 20 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. An advocate for a proportionate approach to banking rules, ESBG unites at EU level some 1,000 banks, which together employ 780,000 people driven to innovate at 56,000 outlets. ESBG members have total assets of €6.2 trillion, provide €500 billion in SME loans, and serve 150 million Europeans seeking retail banking services. ESBG members are committed to further unleash the promise of sustainable, responsible 21st century banking.

 

 

European Savings and Retail Banking Group – aisbl

Rue Marie-Thérèse, 11 ■ B-1000 Brussels ■ Tel: +32 2 211 11 11 ■ Fax: +32 2 211 11 99

Info@wsbi-esbg.org ■ www.wsbi-esbg.org

 

 

Published by ESBG. July 2018.

 


European Supervisory Authorities (EBA-ESMA); Capital Requirements Directive and Regulation