European Banking Authority will facilitate NPL sales with new data templates

The European Banking Authority (EBA) intends to improve its data templates on non-performing loans (NPLs). According to this goal, EBA publishes a discussion paper and invites all stakeholders and NPL market participants on the buyer and seller side to provide their input until 31 August 2021. The main goal is to facilitate sales of NPLs and the functioning of the secondary markets for NPLs, noted EBA. 

The NPL templates, published by EBA, are being streamlined to help banks better prepare as part of their NPL management strategies in the aftermath of the COVID-19 pandemic, whilst addressing information asymmetries to promote price discovery between buyers and sellers.

The revised templates take into account the experience of market participants on the buyer and seller side. The NPL data templates play an important role in providing a common basis for data exchange in secondary markets, which is part of the overall strategy to tackle NPLs in the EU since 2017, says the Supervisor. 

The current revision of the template is based on the user experience and feedback from various market participants and responds to the European Commission’s Communication on tackling NPLs in the aftermath of the COVID-19 pandemic. The document has been accepted in December 2020 and requests the EBA to review the templates based on a consultation with market participants. 

The objective of this revision is to make these voluntary data templates simpler, more proportionate and more effective and make them available to all market participants by the end of 2021. The EBA notes that the adoption of the proposed Directive on credit servicers, purchasers and recovery of collateral may mandate the EBA to turn these data templates into implementing technical standards, for which the EBA would have to publish a consultation paper about the change. The EBA developed standardised NPL data templates in 2017 to help facilitate financial due diligence and the valuation of NPL transactions. These templates aimed to reduce information asymmetries and barriers to entry in EU NPL markets. 

Two weeks ago Andrea Enria, chairman of the Supervisory of European Central Bank (ECB), warned Reuters that about 40% of banks in the eurozone are failing to get to grips with loans likely to go unpaid due to the pandemic of COVID-19. According to him, these banks are hoping for better times or seeking to “sweep problems under the carpet”. Since lockdowns were imposed last year, the ECB has urged banks to recognise losses and set aside sufficient cash to absorb them, offering respite from capital and liquidity requirements to help them in the process. 

A few months ago, the European Commission warned that the increase in overdue debt is a risk factor for the sustainability of Europe’s economy.