TIER ONE EXCHANGE | Secondary Market for Bank Assets in Europe | Regulatory Guidance to Banks on Developing Active Disposition Strategies
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Regulatory Guidance to Banks on Developing Active Disposition Strategies

Regulatory Guidance to Banks on Developing Active Disposition Strategies

Below is a summary of the recent guidance provided by the European Central Bank for bank management on developing and implementing active sales strategies for non-performing loans:

    • Bank’s strategy should include the setting of quantitative targets (reserve price) by portfolio and a detailed implementation plan. The guidance urges banks to put in place appropriate governance and operations structures to deliver effective NPL workouts, including setting up dedicated NPL workout units and establishing clear policies linked to NPL workouts. Reserve price targets should be formulated in context to internal and regulatory capital adequacy limits that management sets in estimation of realized losses during a final sale.

    • Guidance provides short-term and long-term options on viable forbearance solutions with the aim of returning the exposure to a situation of sustainable repayment. It guides banks on how to measure impairment and write-offs ­in line with international recommendations. The guidance also outlines the policies, procedures and disclosures banks should adopt when valuing immovable property held as collateral for NPLs.

    • Guidance will serve the supervisor as a basis for evaluating banks’ handling of NPLs, as part of the regular supervisory dialogue. Addressing the high level of NPLs in some banks and euro area countries has been a process that started with the 2014 comprehensive assessment. That exercise marked the first time that banks’ assets were evaluated with the same yardstick, and resulted in a more adequate level of provisions, providing supervisors with a solid basis to further address the issue. The guidance follows up on this process to reduce the level of NPLs, recognising that it will take some time until NPLs have been reduced to reasonable levels, but also gradually putting a stronger focus on the timeliness of provisions and write-offs.

    • The ECB, together with eight national supervisory authorities, also conducted a stocktake of national supervisory practices and legal frameworks concerning NPLs. While a number of countries have taken proactive and coordinated prudential, judicial and other measures to tackle the issue, some countries could further improve their legal and judicial framework to better facilitate the timely workout of NPLs.

Our central marketplace and structured workflows can streamline asset sale arrangements and NPL workouts in an orderly fashion, while also providing management with the infrastructure necessary to monitor and baseline the efficacy of their disposition strategies.