The European Central Bank (ECB), as the sole supervisor of the main banks in the euro area, announced on Thursday 22 August that it was revising its expectations for the prudential provisioning required for new non-performing loans (NPLs) by aligning them with the Regulation (2019/630).
This regulation sets the minimum coverage ('Pillar 1') of losses inherent in the stock of non-performing loans granted after 26 April 2019 (see EUROPE 12162/11). For these NPLs, the provisioning must be total within 3 years for an unsecured loan, 7 or 9 years for a guaranteed loan, and dependent on the type of guarantee.
"The relevant prudential provisioning time frames, the progressive path to full implementation and the split of secured exposures, as well as the treatment of NPEs guaranteed or insured by an official export credit agency, have been aligned with the new EU regulation", highlights the ECB, promising to pay particular attention to the risks inherent to NPLs contracted after 26 April 2019.
The Chairman of the European Parliament's Committee on Economic and Monetary Affairs, Roberto Gualtieri, described the publication of the ECB's communication as a "significant contribution to removing the uncertainty that still existed regarding prudential rules for the new NPLs". According to him, the single supervisor recognises "the primacy of the decisions of the European legislator" in this field.
The Italian Socialist also welcomed the clarification that the prudential treatment ('Pillar 2') of previous NPLs, which is not covered by European legislation, will be on a case-by-case basis and is not legally binding.
The ECB's publication ends a controversy raised in 2018 by MEPs for whom the single banking supervisor, through the adoption of additional provisions ('addendum') (See EUROPE 11982/3), had exceeded its powers by imposing excessive prudential requirements for the treatment of future NPLs.
See the ECB communication: http://bit.ly/2Z8o3Ew (Mathieu Bion)