18 April, Blasting News
The definitive version of the addendum to the ECB guidelines concerning the management of bad loans has been published. The term of 7 years has been confirmed. After that, the credits backed by real estate must be fully devalued. In order to avoid controversies, the document clearly specifies that: these guidelines are applicable to those credits classified as non-performing starting from March 2018, and that these are not binding conditions, as each case will be individually evaluated during the inspection phase.
The minimum prudential requirements for bad loans provisions have also been disclosed with the guidelines.
Difference between guidelines and measures
The measures have a regulatory nature; hence, they’re binding, and all the banks have to comply. Whereas the guidelines are an addition to the cautionary accounting management when dealing with NPL. The document also includes intermediate thresholds for provisions before the 7 years term.
The ECB guidelines will be applicable to bad loans as of March 2018, thus they will not be applicable to the existing stock.
The new guidelines will be effective on the credits originated starting from 14th March 2018 and they will applicable starting from the moment these credits become non-performing.
The difference between 7 and 8 years
Eight years from the default date is the due date starting from which the binding regulation forces banks to fully devalue their credits issued starting from 14th March.
Whereas seven years is the indicative limit after which, during the inspection phase, the surveillance officers will deem appropriate whether a secured loan should be fully devalued unless there is evidence supporting an alternative accounting choice.
Source: Blasting News
Translator: Cristina Ambrosi