European Central Bank consults on guideline to harmonise supervisory coverage expectations for legacy non-performing exposures at less significant institutions

European Central Bank Banking Supervision launched a public consultation on a draft Guideline that would harmonise how euro area supervisors set coverage expectations for legacy non-performing exposures (NPEs) at less significant institutions (LSIs), which are directly supervised by national competent authorities (NCAs). The initiative targets LSIs that continue to carry long-standing NPE stocks with lower coverage than significant institutions, with the ECB framing these legacy exposures as a continuing source of potential losses and a constraint on new lending. Addressed to NCAs, the draft Guideline sets a common supervisory approach under Pillar 2 while allowing supervisory discretion. It proposes supervisory coverage expectations for legacy NPEs originated before 26 April 2019, which are outside the scope of the Capital Requirements Regulation’s deduction requirement for NPEs originated after that date, and it allows NCAs to determine annually which LSIs fall within scope using risk and contextual criteria, with bank-specific follow-up assessed case by case. A gradual phase-in from 31 December 2025 to 31 December 2028 is intended to cushion the impact, and reporting would use a concise template aligned with existing Common Reporting (COREP) submissions. The consultation runs from 15 September to 27 October 2025. After it closes, the ECB plans to publish the comments received, a feedback statement, and the final Guideline.