Addressing Euro Finance Week in Frankfurt on Tuesday 14 November, Sabine Lautenschläger, the vice-chair of the supervisory board of the European Central Bank (ECB), took pains to reassure the financial industry over the draft addendum to the ECB's guidelines on the provisioning of non-performing loans (NPL).
Readers may recall that this addendum sets out provisioning requirements to apply only to loans newly classified as non-performing with effect from 1 January 2018 (see EUROPE 11876). It has come under heavy fire and been interpreted as laying down automatic rules applicable to all banks, which critics argue would exceed the mandate of the ECB (see EUROPE 11899).
Bearing the future in mind and making sure that the NPL problem does not recur is the message that Lautenschläger sought to get across. She argued that banks must look carefully at how they will react if the performing loans they hold in in their portfolio should become non-performing loans. New non-performing bank loans should therefore be provisioned prudently within a reasonable period of time, she stressed.
Unlike the chair of the Single Supervisory Board of the monetary institute, Danièle Nouy, at her hearing before Parliament's committee on economic and monetary affairs (see EUROPE 11901), Lautenschläger did not raise the possibility of rewording the addendum, but used the same line of argument.
Although our expectations are strict, there are no automatic actions, she reiterated. There will be individual dialogue with each bank concerned into the underlying reasons for the incomplete provisioning of these loans. Only if the results of this structured dialogue are not convincing will the ECB consider so-called 'Pillar II' supervisory measures, she said.
Furthermore, this option is not new and has happened in the past, she said, referring to the ECB's recommendation on dividend distribution policy and the monetary institute's examination of the quality of assets.
“NPLs are a joint problem and we need to make a joint effort to resolve it”, she said in conclusion. She went on to stress that “each party has a role to play: banks, supervisors and politicians”. (Original version in French by Marion Fontana)