The European Central Bank (ECB) announced a revision of its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans (NPLs)” due to the entry into force on 26 April 2019 of Regulation (EU) 2019/630. The new regulation amends the Capital Requirements Regulation (CRR) by outlining the Pillar-1 treatment for NPEs, e.g., requiring a deduction from own funds when NPEs are not sufficiently covered by provisions or other adjustments. The scope of the ECB’s supervisory expectations for new NPEs will now be limited to NPEs arising from loans originated before 26 April 2019, which are not subject to the new Pillar-1 NPE treatment for loans originated from 26 April 2019 onwards. In addition, the relevant prudential provisioning time frames, the progressive path to full implementation and the split of secured exposures, as well as the treatment of NPEs guaranteed or insured by an official export credit agency, have been aligned with the new Pillar-1 treatment of NPEs. All other aspects, including specific circumstances that may make prudential provisioning expectations inappropriate for a specific portfolio/exposure remain as described in the Addendum. Supervisory expectations for the stock of NPEs (i.e. loans classified as NPEs on 31 March 2018) remain unchanged, as communicated in the Supervisory Review and Evaluation Process (SREP) letters sent to banks and in the press release from July 2018.

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