A number of banks in Member States across the Euro area are currently experiencing high levels of non-performing loans (NPLs) which ultimately have a negative impact on bank lending to the economy. In this regard, addressing asset quality issues is one of the key priorities for ECB banking supervision.
In this context, following a period of consultation, the ECB published in March 2017 a Guidance to banks on NPLs, with the objective of developing a consistent supervisory approach regarding the identification, measurement, management and write-off of NPLs. In particular, this document provides recommendations to banks and sets outs a collection of best practices regarding NPLs that will constitute ECB’s supervisory expectations from now on.
The technical note prepared by Management Solutions’ R&D department includes an analysis of the main content of this guidance.
The guidance on NPLs provides recommendations on NPL strategy, governance and operations, forbearance, NPL recognition, impairment measurement and write-offs, and collateral assessment for immovable property.
Scope of application
Addressed to all significant institutions (SIs) supervised directly by the ECB. It is a non-binding instrument, although deviations should be explained upon supervisory request and it is integrated into SREP.
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