EBA proposes standardised information for sales of non-performing loans

Posted on May 20, 2022 by Editor

The European Banking Authority (EBA) has launched a consultation on proposed rules on the information provided by sellers of non-performing loans (NPL) to prospective buyers. The functioning of NPL secondary markets has been brought into focus by the Covid-19 pandemic and may well stay relevant as economic tides turn.

The objective of the EBA’s draft Implementing Technical Standards (ITS) is “to provide a common standard for the NPL transactions across the EU enabling cross-country comparison and thus reducing information asymmetries between the sellers and buyers of NPL.” Templates for the provision of loan-by-loan information are the core of the ITS, built on previous voluntary templates and incorporating industry feedback and market practices. The use of standard templates with defined fields will, the EBA hopes, facilitate the sales of NPL on secondary markets, increase efficiency of those markets and reduce entry barriers for small credit institutions and smaller investors.

We note with interest that, while the draft ITS does not prescribe a specific format, it does envision and encourage digital disclosure, stating that: “Credit institutions shall provide the information specified in this Regulation in an electronic and machine-readable form unless agreed otherwise between the credit institutions and the prospective buyers.” It suggests that where NPL transfers occur as a bilateral transaction, the two parties involved may agree on the most suitable protocols for information exchange. Whereas, when credit institutions use electronic auction or transfer platforms to organise NPL sales or transfers, further requirements for the electronic and machine-readable format may be set out by such platforms.

Comments on the consultation are due by 31 August 2022.

Read more here and here.

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