The European Central Bank (ECB) announced further measures in response to the COVID-19 pandemic. First, ECB supervisors will exercise temporary flexibility regarding the classification of debtors as “unlikely to pay” when banks call on public guarantees granted in the context of COVID-19. The supervisor will also exercise certain flexibilities regarding loans under COVID-19 related public moratoriums. Second, loans which become non-performing and are under public guarantees will benefit from preferential prudential loss-provisioning treatment. Lastly, supervisors will deploy full flexibility when discussing with banks the implementation of reduction strategies for non-performing loans, given the extraordinary nature of current market conditions. The ECB recommends that all banks avoid procyclical assumptions in their models to determine provisions and that those banks that have yet to opt for the IFRS 9 transitional rules do so.

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