Enhancements in Supervision of NPEs
EBA 2024 Follow-up Report
The European Banking Authority (EBA) recently published its 2024 follow-up report on the supervision of non-performing exposure (NPE) management by credit institutions. This report builds upon the 2022 peer review, which assessed the implementation of the EBA Guidelines on managing non-performing and forborne exposures (EBA/GL/2018/06) by competent authorities (CAs) across the EU.
Overview and Key Developments
The 2024 report, covering feedback from 21 CAs that had not fully implemented the guidelines in 2022, highlights significant progress in aligning practices with the EBA standards. While the initial peer review revealed several areas requiring enhancement, the follow-up report noted substantial improvements among most CAs.
Key areas of review included:
Integration of NPE assessment in supervisory practices: Authorities were evaluated on their incorporation of NPE considerations into the Supervisory Review and Evaluation Process (SREP) methodology and supervisory manuals.
Application of forbearance measures and early warning mechanisms: The assessment focused on the robustness of early warning systems within credit institutions to preempt deteriorating credit quality.
Performance of regular implementation reviews: CAs were assessed on their consistency in reviewing the application of the guidelines and the effectiveness of NPE management.
Findings and Upgrades
Improved Compliance: The follow-up revealed that most CAs had advanced their supervisory frameworks, elevating ratings from "partially applied" to "fully applied" or "largely applied" across various areas.
Supervisory Enhancements: Countries such as Bulgaria and Italy improved to "fully applied" for the application of guidelines, while Malta, Norway, and Slovakia achieved "largely applied" due to ongoing adjustments in supervisory tools.
SREP Integration: Significant strides were made in incorporating NPE guidelines into the SREP methodology, with countries like Greece and Croatia achieving full compliance.
Challenges Recommendations and Continued Vigilance
Despite the overall positive trajectory, a few CAs, notably in Lithuania, Norway, and Slovakia, continue to face challenges in fully meeting the guideline requirements. Issues cited include the need for more comprehensive supervisory tools and enhanced documentation for on-site examinations.
Although the report did not introduce new recommendations, it underscored the importance of vigilance due to an increase in non-performing loans (NPLs) highlighted in the EBA’s July 2024 Risk Assessment Report. This underscores the necessity for CAs to remain proactive in monitoring credit quality and developing strategies to mitigate risks.
Conclusion
The 2024 follow-up report affirms the positive strides made by European supervisory authorities in strengthening the oversight of non-performing exposures. However, it also signals a need for continued enhancement, particularly as economic challenges may trigger further growth in NPLs across the EU.
Entering Italian NPE Market is a newsletter and a Linkedin Group focused on News, Updates, and Insights on Italian Banks, Distressed Credit Markets, Fintech, and Real Estate.
Relevant Links:
https://www.eba.europa.eu/sites/default/files/2024-11/2881cb9e-1acc-4be7-991a-2e26d9b9f927/Follow-up%20report%20on%20the%20Peer%20Review%20on%20Supervision%20of%20Non-Performing%20Exposures.pdf
This newsletter is free please consider supporting it with a small donation
See my full professional profile (available for consulting projects)
My Podcast on Financial News and Education
My new Podcast on Italian Politics