Financial Services Ireland

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European Banking Authority Loan Origination and Monitoring Guidelines

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The Covid-19 pandemic has heightened the necessity of maintaining good credit risk management standards to support lending to the economy. It is essential that banks have effective processes and access to data to support the identification and proactive management of situations where obligors may face financial difficulty.

In the midst of the pandemic, the European Banking Authority (EBA) published its final Guidelines on Loan Origination and Monitoring on the 29 May 2020 (Guidelines).

These Guidelines form part of the response to the European Union’s Action Plan regarding high levels of non-performing exposures witnessed throughout the global financial crisis (GFC), with non-performing loan (NPL) ratios remaining at pre-GFC levels in some countries at present.  The objective of the Guidelines is to:

  • Further improve institutions’ practices and governance to ensure effective management and monitoring throughout the loan cycle;
  • Prepare the banking sector for upcoming challenges within the EU banking sector (for example, Sustainability, Fintech etc.); and
  • Improve profitability by ensuring that newly originated loans are of high credit quality, while respecting and protecting the interests of consumers.

The Guidelines are split over five chapters, setting requirements across governance, loan origination, pricing, collateral valuation and monitoring.

Given the breadth of the requirements they will have wide-reaching consequences for policies, processes and data/IT, particularly in respect of the monitoring requirements framework requirements.

It is also worth noting that the European Central Bank (ECB) continues to strengthen its approach around this topic with a focus on credit underwriting being a supervisory priority for a second year in a row.

To navigate these guidelines, our latest paper – which you can download below – focuses on the context of these Guidelines, our assessment of the key implementation challenges having supported clients on this topic and key success factors for an effective assessment of the Guidelines.

Don’t hesitate to reach out if you have a question.

Mark Brangam

Associate Partner, Risk Consulting
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