In October 2018, the EBA published GLs on the management of NPEs and FBEs.
The GLs aim to reduce NPEs and FBEs on firms’ balance sheets by providing supervisory guidance to ensure that firms effectively manage NPEs and FBEs through to a successful work-out. The GLs cover all asset classes and loans backed by both immovable and movable collateral.
The PRA’s approach to the GLs
The PRA acknowledges the prudential aspects of these GLs broadly represent good credit risk management standards. The GLs may be a helpful reference material for firms’ management of NPEs and FBEs.
However, the PRA notes that these GLs are not applicable to or in the UK. In particular:
- The GLs apply detailed requirements for firms with a gross NPE ratio of at least 5%. The PRA has not adopted the 5% threshold and the associated additional obligations when a firm exceeds this threshold.
- The GLs require competent authorities to define a common threshold for the individual valuation and revaluation of the collaterals used for NPEs. The PRA has not set a common threshold and the approach to valuation and revaluation is at the discretion of individual firms.