This document presents guidelines on the disclosure of non-performing and forborne exposures for credit institutions. It outlines compliance obligations and reporting requirements for competent authorities and financial institutions. The guidelines aim to standardize supervisory practices within the European financial system.
This document is a consolidated version of the guidelines issued by the European Banking Authority (EBA) in October 2022, referenced EBA/GL/2018/10, amended by EBA/GL/2022/13. It concerns disclosure requirements for non-performing exposures (NPE) and forbearance exposures (FBEs) as well as seized assets by credit institutions. The scope covers credit institutions subject to the disclosure requirements of Regulation (EU) No 575/2013, including small non-complex listed institutions, other non-listed institutions, and significant institutions according to specific criteria (size, systemic importance, NPL ratio). The data concern credit exposures, their characteristics, provisions, guarantees, as well as movements and quality of assets, with application from December 31, 2019 (p. 1-6).
The EBA guide aims to harmonize the disclosure of non-performing exposures (NPE) and forbearance exposures (FBEs) by European credit institutions, to improve transparency and comparability of data on credit quality. This topic is crucial for prudential supervision, risk management, and market confidence. The main findings are that institutions must publish detailed information on loan quality, provisions, guarantees, NPE movements, as well as seized assets, according to standardized formats and variable frequencies (annual or semi-annual) depending on their size and NPL level. The guidelines define clear criteria for institution classification, the definition of non-performing and forborne exposures, and specify calculation methods for ratios and amounts to disclose. They replace and improve previous EBA requirements, notably by integrating detailed templates covering ten specific areas, ranging from exposure quality to collateral valuation and NPL movements. Recommendations emphasize the need to accompany numerical data with narrative analyses explaining significant changes. The application of these guidelines should allow better credit risk assessment by supervisory authorities and stakeholders, while facilitating comparability between institutions and countries. Institutions must notify their compliance to the EBA, which will publish this information. In conclusion, this guide establishes a robust and detailed framework for the disclosure of problematic exposures, essential for European financial stability (p. 1-6, 7-35).
This document was developed to address the need for harmonization of disclosure practices for non-performing and forbearance exposures in the European banking sector. The issues relate to transparency, risk management, and prudential supervision in a context where NPEs represent a significant systemic risk. The objective is to provide a clear, uniform, and detailed framework for publishing information on credit quality, provisions, guarantees, and movements of problematic assets. The scope covers credit institutions subject to the requirements of Regulation (EU) No 575/2013, with differentiated application according to size and NPE portfolio quality. The document also specifies technical definitions, calculation methods, publication frequencies, as well as responsibilities of competent authorities and institutions. The main limitation is that these guidelines apply only to institutions within the European regulatory framework and do not cover other types of exposures or assets outside the scope (p. 1-6).
Definitions and scope: The guidelines rely on the definitions of Regulation (EU) No 575/2013 and Implementing Regulation (EU) No 680/2014 to define non-performing exposures (NPE), forbearance exposures (FBEs), and seized assets. Institutions are classified according to their size, complexity, and systemic importance, with a 5% NPL ratio threshold for certain disclosure obligations (p. 3-6).
Frequency and disclosure modalities: Significant institutions and those with an NPL ratio above 5% must publish certain templates semi-annually, others annually. Small institutions have reduced obligations. Publication must be close to the financial statements date (p. 5-6).
Disclosure templates: Ten standardized templates are defined, covering:
- The quality of forbearance exposures (Templates 1 and 2), including gross amounts, provisions, guarantees, and quality of forbearance measures (p. 7-11).
- The quality of non-performing exposures and their breakdown by arrears vintage (Template 3), by portfolio and associated provisions (Template 4), by geography (Template 5), and by industrial sector (Template 6) (p. 12-23).
- The valuation of collateral associated with loans (Template 7), with details on secured loans, loan-to-value ratios (LTV), and provisions (p. 24-27).
- NPL movements (Template 8), detailing inflows, outflows, repayments, liquidations, sales, risk transfers, write-offs, and reclassifications (p. 28-30).
- Seized assets (Templates 9 and 10), with information on initial value, accumulated impairments, accounting classification, and duration since seizure (p. 31-35).
Narrative accompaniment: Each template must be accompanied by an analysis explaining significant variations compared to the previous period, to contextualize numerical data (p. 7, 10, 12, 15, 18, 21, 24, 28, 31, 33).
Calculations and technical definitions: Gross amounts, provisions, impairments, and guarantees must be calculated according to IFRS 9 standards or applicable national accounting principles. The NPL ratio is defined as the ratio between the gross amount of NPLs and total loans and advances, excluding certain assets (p. 5, 15-17).
Responsibilities and compliance: Competent authorities must integrate these guidelines into their supervisory practices and notify their compliance to the EBA. Institutions must comply with disclosure requirements according to their classification and thresholds (p. 2-3).
Findings:
- The guidelines define a harmonized and detailed framework for disclosure of non-performing and forbearance exposures, with ten templates covering loan quality, provisions, guarantees, NPL movements, and seized assets (p. 7-35).
- Classification criteria of institutions (significant, small, non-complex) and thresholds (notably 5% NPL ratio) determine disclosure obligations and frequency (p. 3-6).
- Data must be published at least annually, with semi-annual frequency for the most significant institutions or those with high NPL ratios (p. 5-6).
Assumptions:
- The quality of published data depends on correct application of regulatory definitions and accounting methods (IFRS 9 or national standards) (p. 15-17).
- Materiality of sectors, countries, or exposure types is assessed according to thresholds defined by the EBA (p. 18, 23).
Interpretations:
- Standardization of formats and definitions should improve data comparability between institutions and countries, facilitating prudential supervision and risk management (p. 2-3).
- The obligation to accompany data with narrative analyses allows better understanding of developments and risk factors (p. 7, 10, 12, 15, 18, 21, 24, 28, 31, 33).
Uncertainties:
- The actual impact on data quality will depend on institutions' rigor in collecting, calculating, and communicating information.
- Effective implementation by competent authorities may vary by jurisdiction, despite the notification obligation (p. 2).
The EBA concludes that these guidelines constitute an essential framework for transparency and risk management related to non-performing and forbearance exposures in the European banking sector. They replace and improve previous requirements by introducing harmonized formats, precise definitions, and frequencies adapted to institution size and profile. Institutions must comply with disclosure obligations from December 31, 2019, adjusting frequency according to their classification and NPL ratio. Competent authorities must integrate these guidelines into their supervisory practices and notify their compliance to the EBA. Institutions must accompany numerical data with analyses explaining significant developments. This framework aims to strengthen market confidence, facilitate prudential supervision, and improve credit risk management. No detailed action plan is specified beyond implementation and notification obligations (p. 1-6, 35).
Synthesis note written from the full document by DataSAI Academy. This note comes from the scientific library of the DataSAI Academy, open to all.