The Eba Launched A Public Consultation On Its

Sergio Gianni

Supervisory Reporting amendments with regards to FINREP: the proposed changes.


The proposed changes

The EBA launched a public consultation on amendments to the Implementing Technical Standards (ITS) on supervisory reporting on FINREP - non-performing and forborne exposures reporting, IFRS16 and P&L. The proposed changes, aim to keep reporting requirements consistent with changes in the regulatory framework and with the evolving needs for Supervisory Authorities' risk assessments.

The proposed changes envisage two complementary “Modules”.

  • Module 1 covers revisions to existing templates, introducing additional breakdowns on performing and nonperforming exposures, forborne exposures and collateral obtained (mainly templates 18 and 19).
  • Module 2 introduces new templates (templates 23 to 26 and 47) to provide deeper insights into institutions’ NPE portfolios and NPE management strategies

Module 1 supports the monitoring of the specific risks born by commercial real estate (CRE) loans (i.e. exposures to real estate developers and the income producing real estates) as a portfolio where particular scrutiny is expected from the supervisors in accordance with the Recommendation of the European Systemic Risk Board on closing real estate data gaps (ESRB/2016/14).
The review to the templates on non-performing and forborne exposures close a data gap identified with regard to exposures to SMEs as a type of counterparty of particular interest from an economic perspective. The request for more detailed information on different collateral types aims at gaining a more complete vision on the coverage of different sub-portfolios in terms of collateral and financial guarantees and further details into the use of collaterals with different liquidity levels. The information on collateral obtained provides an indication of an institution’s foreclosure management and, considering the transformation of a non-performing exposure to an asset obtained by taking possession as an additional step in the credit cycle, of an institution’s strategy for dealing with non-performing assets in a broader sense.

Module 2 complements Module 1 by introducing new templates with information that provide additional insights into an institutions’ portfolios of performing and non-performing loans and advances (NPL), on collateral obtained and on forborne loans and advances (FBL), such as:

  • Exposures in (pre-) litigation status, accumulated partial write-offs or exposures with a very high coverage in terms of impairments etc.
  • Drivers for inflows into or outflows from the NPL portfolio, flow of impairments and write-offs,
  • Collateral in- and outflows, information on vintage of the collateral (recognition in the balance sheet) or
  • More detailed information on the forbearance management and quality of forbearance.

Non-performing exposures are one of the key priorities for supervisors and one of the biggest challenges faced by many institutions across Europe. High NPE levels ultimately have a negative impact on institutions’ profitability, solvency and consequently lending capacity to the overall economy.

Given the above please find below a focus on integration / modification to be made on f 18 and f 19 templates


Information on performing and non-performing exposures

F 18 comprises the following new, revised or enhanced elements:

  • Columns added to improve information on exposure and NPE, broken down by impairment phases IFRS 9, in order to monitor the connection between performance status and accounting treatment
  • Revision of the ‘days past due’ buckets in the NPE template, in order to facilitate the close monitoring of the gradual provisioning of different types of NPEs
  • Columns added to introduce new information on inflows into and outflows from the NPE portfolio, targeted at capturing the dynamics of the development of institutions’ NPE portfolio.
  • Columns added to improve enhanced information on collateral and guarantees received.
  • Rows added to introduce new information on commercial real estate (CRE) exposures as well as new information on exposures secured by immovable property by level of collateralisation.
  • In addition, information on exposures secured by immovable property with a high LTV ratio is collected to gain insights into exposures with a potentially insufficient collateral coverage

Information forborne exposures

F 19 comprises the following new, revised or enhanced elements:

  • Enhanced and new information on performing exposures, NPEs and FBEs toward selected counterparty types (SMEs, households)
  • In addition to the changes already seen for the F18, columns added to improve enhanced information on collateral and guarantees received, (more detailed breakdowns by type of collateral and guarantees received, information on value changes since recognition).

This public consultation will run until 27 November 2018, and the EBA expects to submit these revised draft ITS to the European Commission in April 2019. The application of the revised requirements will be in March 2018, with the first reporting reference date as of 31 March 2020.


Main Challenges

The paper includes changes on the reporting of non-performing and forborne exposures, which are key to assessing institutions’ strategies on the management of non-performing loans. Therefore, the proposals further seek to strengthen supervisors’ ability to assess and monitor non-performing portfolios by collecting information that is more granular on these assets on a recurring basis.

Among the main difficulties that Banks could face in order to implement the new ITS, there are:

  • Classification of “CRE exposures”: the definition given by EBA and referred to the “ESRB recommendation on closing real estate data gaps” (ESRB/2016/14) could differ from the current internal classification of CRE exposure implemented by the Banks (i.e. thresholds)
  • Definition of “Current loan-to-value ratio”: it has to be calculated by using the current value of the property, that has to be estimate by using indexes sufficiently granular with respect to geographical location and type of properties