How will the NPL Guide Addendum affect Banking Union Supervised Institutions (BUSIs) and the EU-27's NPL Action Plan's workstreams?
On 4 October 2017, the European Central Bank (ECB), acting in its role in the Single Supervisory Mechanism (SSM) component of the Eurozone-19's Banking Union, published a draft of the NPL Guide Addendum. This Client Alert discusses specifically why this Addendum matters and how this will impact wider-reaching NPL developments that are being advanced in the Banking Union as well as the EU-27. For many, the final NPL Guide Addendum will have both "change the business" along with "change the compliance process" impacts and applies to both the banking and trading books. Unless the draft Addendum's rules change, BUSIs will have to fully provision for these new NPLs over a certain time period. Whilst this aims to discourage new NPLs being added to sizable existing stocks, the current draft of the Addendum may have some spillover effects to dealing with existing NPLs and may also have some unforeseen adverse consequences and economic and regulatory capital costs. As a result, those affected may want to consider taking preparatory steps sooner rather than later.