1. harmonisation of the npl market through the implementation of a standardised template
1.1. The purpose of npl templates
The standardised templates proposed by the EBA aims at :
- Increasing the efficiency of secondary markets for NPL sales
- Reducing barriers to entry for small banks and investors.
- Taking into account existing best practices from previous voluntary sales templates and the experience of market participants on the sell-side and buy-side.
- Providing detailed information on credit risks in the banking book to enable analysis by NPL buyers,
- Promoting financial due diligence by NPLs buyers and the assessment of a creditor’s rights
- Providing a loan-by-loan information on the counterparties linked to the NPLs, the contractual features of the loan itself, any collateral provided with associated enforcement procedures and the historical collection and repayment schedule of the loan
- Providing a data glossary and instructions for filling in the templates.
1.2. The objective of the EBA ITS
Launched in May 2022, the ITS aims to :
- Clarify the requirements for information to be provided by NPL sellers to potential buyers, with a view to improve the functioning of secondary market for NPL
- Provide a common standard for NPL transactions across the EU allowing comparison between countries, including data fields with their definitions and characteristics
- Reduce information asymmetries between sellers and buyers of NPLs
- Streamline the data fields
- Clarify the data definition
- Ensure that data is closely aligned with market practice
- Meet the needs of financial due diligence and assessment of NPLs by potential buyers prior to the conclusion of a sale and a purchase contract.
- Take into account the principle of proportionality by :
- Setting different information requirements according to the size of the NPLs
- Specifying mandatory and non-mandatory data fields
- Considering a different scope of data fields depending on the nature of the borrower (individual or business) and the nature of the loan (secured or unsecured)
- The propotionality principle will enable :
- A smaller number of mandatory data fields for loans with a book value below the materiality threshold of EUR 25 000,
- More data fields for non-performing loans above this threshold.
- Set out requirements for the treatment of confidential information exchanged between credit institutions and buyers, as well as governance requirements for credit institutions to ensure that the information provided is complete, accurate and consistent
2. An ITS structured in 5 templates
2.1. Template 1 on counterparty information
This Template covers information to identify the group of counterparties, where the counterparties can assume one of the following roles: “borrower”, “lessee” and “protection provider”.
For individual borrowers, the template includes information on :
- The age of the counterpart
- Its place of residence
- Its nationality.
For corporate borrowers, the template includes information on :
- Data fields on the counterparty group.
- Customer location regions.
- Information on the annual balance sheets.
- The level of indebtedness of the counterparty.
- Annual turnover.
These data fields are intended to capture key accounting data as a starting point for the valuation process, and they provide an overview of the creditworthiness of the counterparty from an accounting perspective. The template also contains information on any legal proceedings against the counterparty, both for individuals and for companies.
2.2. Template 2 on the RELATIONSHIP BETWEEN the counterparty, the loan and any related collateral provided.
The different NPL data templates are linked to each other using their respective unique identifiers :
- Counterparty identifier.
- Counterparty group identifier.
- Contract identifier.
- Instrument identifier.
- Protection identifier.
Thus, these combinations of situations are possible :
- A borrower may have several loans which are identified by the related contract and instrument identifiers.
- A loan may in turn have one or more counterparts.
- A counterparty may be part of a group of counterparties.
- A loan can have several guarantees.
- A guarantee can be associated with several loans.
The template also shows the relationship between any property security and its tenants, and between any security received and its protection provider.
2.3. Template 3 on loan contract information
This template 3 includes :
- Data fields on the due date.
- The asset class to which the loan belongs.
- The type of instrument.
- The non-performing loan category.
- The loan balances and its currency.
- The type of depreciation.
- The last payment made.
- Clarification whether the loan is granted by a syndicate or consortium of two or more credit institutions.
- The state of arrears and default of the loan.
- Detailed information on interest rates and payment frequency for NPLs that are included in the categories ‘unlikely to pay that are not past-due or past-due <= 90 days’ or ‘Past-due > 90 days and <= 1 year’ as defined in FINREP template F 18.00.
- Data fields related to any leasing agreements and emergency restructuring measures (forberance) granted, if any.
2.4. Template 4 on collateral and guarantees
This template includes :
- Data fields on any real estate and movable property collateral, any other type of collateral, any collateral and any relevant collateral.
- Information on the enforcement procedure that may be applicable to these assets.
- Assets recognised in the financial statements over which the bank has a right of use under finance leases.
- Detailed property security information on the specifics of the property, including its location, type and sector, lien position, mortgage amount, type of occupancy, building size and completion.
- Data fields for movable assets, other collateral and guarantees on the type and characteristics of the collateral, including the legal owner and currency of the assets, the activation and eligibility of any financial collateral, the isin number of any equity and debt securities collateral.
- The last estimated value of the guarantee, which was provided internally or externally.
2.5. Template 5 on recovery and repayment capacity
This template includes :
- Information on historical collection, including external collection, and the expected repayment schedule related to the loan.
- The annual historical balance data fields, for the last two years before the cut-off date the annual amounts.
- Expected repayment schedule over a period of 36 months from the cut-off date.
Abbreviations and glossary
CRR: Capital Requirements Regulation.
SREP: Supervisory Review and Evaluation Process.
EBA: European Banking Authority.