The European Central Bank (‘ECB’) has decided to revise its supervisory expectations for prudential provisioning of new non-performing exposures (‘NPEs’) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (‘Addendum’). This revision follows the adoption of an EU regulation, which came into force on the 26 April 2019, outlining the Pillar 1 treatment for NPEs; as well as the ECB’s commitment to reconsider supervisory expectations for NPEs once the new legislation on the Pillar 1 treatment of NPEs has been finalized.

The following changes have been made to the supervisory expectations communicated in the Addendum:

  • limitation in the scope of the ECB’s supervisory expectations for NPEs; i.e. NPEs arising from loans originated before the 26 April 2019 are not subject to Pillar 1 NPE treatment, whilst those arising from the 26 April 2019 onwards will be subject to Pillar 1 treatment;
  • alignment with the Pillar 1 treatment of NPEs as set out in the EU regulation with regards to: (i) the relevant prudential provisioning time frames; (ii) the progressive path to full implementation; (iii) the split secured exposures; (iv) the treatment of NPEs guaranteed/insured by an official export credit agency.

For more detailed information on the above, refer to MFSA’s news-item which can be accessed here.