The European Central Bank has adopted a guideline instructing national competent authorities in the Single Supervisory Mechanism to apply a harmonised supervisory approach when reviewing how less significant supervised entities manage and cover certain non-performing exposures through provisioning and own funds treatment. The framework is intended to align supervisory practices across participating Member States and to support supervisory follow-up where coverage is assessed as insufficient. The approach applies at the highest level of consolidation, with optional NCA exemptions including where non-performing loans and advances are below 5% of total loans and advances, the in-scope non-performing exposures represent an insignificant share of total non-performing exposures, or the entity is in wind-down, an ongoing merger or acquisition, or is a specialised debt restructurer, or where other specific circumstances make application inappropriate. In-scope exposures are those meeting the conditions for the derogation in Article 469a of Regulation (EU) No 575/2013, with underlying securitisation exposures excluded where significant risk transfer has been achieved or the full deduction approach is used. NCAs may also disapply parts of the approach to individual exposures or portfolios on request and evidence, including where regular debtor cash flows are expected to repay in full, where combined coverage would exceed 100%, or where the exposure relates to technical guarantees. Coverage assessments are to feed into the supervisory review and evaluation process and may lead to supervisory measures under national powers implementing Article 104 of Directive 2013/36/EU. NCAs must require annual detailed reporting on coverage using templates prepared by the ECB with the NCAs, share the submitted data with the ECB, and regularly inform the ECB about exemptions granted. Full assessments under the methodology are to apply from the 31 December 2028 reporting reference date, with transitional calibration for the 31 December 2025, 31 December 2026 and 31 December 2027 reference dates using 0.60, 0.70 and 0.80 factors in place of specified parameters in Regulation (EU) No 575/2013. The guideline takes effect on notification to the NCAs, and for the first reporting reference date after notification an NCA may decide not to use the assessment outcomes in the supervisory review and evaluation process.
European Central Bank 2025-09-15
European Central Bank adopts guideline harmonising NCA reviews of non-performing exposure coverage for less significant banks
The European Central Bank has issued a guideline for national competent authorities within the Single Supervisory Mechanism to adopt a harmonised approach in supervising less significant entities' management of non-performing exposures. The framework aims to standardize supervisory practices across Member States and includes exemptions and transitional measures. Full assessments will apply from 31 December 2028, with transitional calibration for earlier dates.