On 4 May 2021, the European Banking Authority (EBA) published a discussion paper (Discussion Paper) aimed at facilitating the review of the standardized NPL (non-performing loans) data templates.
The public consultation of the Discussion Paper will take place from 4 May 2021 to 31 August 2021.
After having received feedback from the NPL market participants, the EBA will prepare a revised version of the data templates, which will be published by December 2021.
As it is known, the NPL templates were initially developed by the EBA in December 2017, to enhance standardization of NPL-related data and reduce information asymmetries between potential buyers and sellers of NPL portfolios and facilitate financial due diligence and valuation of NPL. They also aim at enhancing the granularity, quality and comparability of NPL data and at increasing transparency and certainty of the secondary markets in the European Union.
The NPL templates are not a supervisory reporting requirement and are intended to be used by banks on a voluntary basis for NPL transactions and to form the basis for NPL secondary markets initiatives.
The templates provide loan-by-loan data, including information on counterparties related to the loan and the collateral provided, taking into account different data needs for the initial data screening of a NPL portfolio and the subsequent financial due diligence (FDD) and relevant assessment.
To address the different data needs during the screening and the FDD and valuation phase of NPL transactions, two sets of templates have been developed by the EBA, the “EBA NPL transaction templates” and the “EBA NPL portfolio screening template”:
(i) the EBA NPL transaction templates:
- provide the most granular and extensive level of data fields, and
- aim at enabling potential bidders to conduct the FDD and valuation of a NPL portfolio in a transaction context.
(ii) EBA NPL portfolio screening templates:
- the example data fields in this level are a subset of the EBA NPL transaction templates and aim at providing information commonly required to perform a market sounding exercise, through a non-exhaustive list, and
- the data fields consent a stratification of the NPL portfolio to provide a high-level view thereof to investors and other third parties potentially involved in transactions, usually in the form of an investment teaser. It aims at enabling potential bidders to perform an initial screening of the NPL portfolio during the first phase of an intended NPL transaction.
The Discussion Paper recently published by the EBA proposes several changes to the existing templates such as restructuring of the data categories, designing asset classes, reduction of data fields, categorization of the data fields as critical and non‐critical, and presents proportionality considerations.
The EBA publishes the Discussion Paper following the European Commission’s action plan to tackle NPL in the aftermath of the COVID‐19 pandemic published on December 2020 (on the European Commission’s action plan, see in this review also NPL: la strategia della Commissione europea di contrasto alla crisi da Coronavirus published on 18 January 2021, cfr. contenuti correlati).
In fact, as mentioned in the Discussion Paper, the European Commission, in its communication of December 2020, stated that the NPLs data templates are not widely used yet by market participants due to their voluntary nature and complexity, and invited the EBA to review the templates on the basis of a consultation with market participants, both on the buyer and seller side, to take place in the course of 2021.
In light of the foregoing, the objective of the Discussion Paper is to strengthen the dialogue with market participants with a view to make the existing NPL data templates simpler, more proportionate and more effective, so as to obtain the right balance between the cost of information provided and the ability of users of the data to effectively price the potential transaction.
In the Discussion Paper, the EBA specifies that stakeholders’ feedback is essential for the review and revision of the templates and would provide valuable input for potentially turning the revised templates into binding standards, which is currently being discussed in the framework of the proposed directive on credit servicers and credit purchasers.
In the EBA’s view, the NPL data templates are expected to play an important role in addressing the increasing levels of NPLs in the aftermath of the COVID‐19 pandemic and the relevant impact on the EU banking sector: in order to manage potential deterioration in the asset quality in the foreseeable future, effective choices for NPL strategies for banks is crucial.
Secondary market transactions represent one of the tools available to banks to manage and reduce NPLs. Access to a functioning and efficient secondary market is therefore necessary for all actors in the EU banking sector, and the templates presented in the Discussion Paper are designed as a public good and rely on critical mass usage to lower costs for all market participants to achieve the desired outcomes in the NPL secondary markets.
The adoption of enhanced standards, by filling the traditional information gaps, will prove beneficial to sellers, buyers and advisors in the assessment and pricing of NPL portfolios and in the negotiation of all aspects of the transactions.
