The ECB is currently working to finalise its NPL Guidance Addendum which it issued for consultation in October 2017. The addendum is expected to introduce quantitative prudential provisioning backstop expectations for new NPLs. The proposal has received significant attention as it is raising a number of questions, especially at the time of IFRS 9 implementation. We have reviewed the main points and potential implications of the addendum and are pleased to share with you our briefing on the topic.
The ECB is issuing this addendum now aiming to take advantage of the benign Eurozone economic environment, which should render the new requirements more palatable. As this proposal is being finalized, with an imminent implementation date at the beginning of 2018, European banks should assess its potential impact, even if the actual date is likely to be delayed by a few months.
The briefing note attached below looks at the proposal in relation to its regulatory and accounting implications, as well as considering the overall broader impact. The consultation has been running until 8 December 2017 including a public hearing on the 30 November 2017.
The initiative is part of a wider set of proposals by European authorities to manage current NPL or NPE stock and prevent excessive build-up of non-covered aged NPLs or NPEs.
We would be more than happy to arrange a call to discuss potential implications and remedial actions.