European Commission has adopted on 26 September 2023 an Implementing Regulation n° 2023/2083 (L241/21), which contains implementing technical standards ("ITS") specifying the templates to be used by credit institutions for the provision of information referred to in Article 16(1) of Directive (EU) 2021/2167 on credit servicers and credit purchasers (also known as the "NPL Directive"). The Commission has also published accompanying annexes. Annex III contains instructions for the use of the data templates for non-performing loans ("NPL") provided for in Annex I and for the data glossary set out in Annex II.
As said by European Commission, the objective of the ITS is to provide a common standard for NPL transactions across the EU enabling cross-country comparison and therefore reducing information asymmetries between the sellers and buyers of NPL. The templates will be used by credit institutions to provide detailed information on their credit exposures in the banking book to credit purchasers for the analysis, financial due diligence, and valuation of a creditor's rights under a NPL agreement, or the NPL agreement itself.
The NPL Directive, adopted in 2021, must be implemented by Member States before 30 December 2023. Article 16(1) of the NPL Directive mandates the EBA to develop draft ITS to specify the templates to be used by credit institutions for the provision of information to credit purchasers when selling or transferring NPL for the purposes of financial due diligence and valuation of NPLs.
After a market consultation in June 2022, EBA has issued its final report and draft ITS on 16 December 2022, then transmitted to the European Commission for adoption.
The EBA introduced information standardisation to increase the efficiency of secondary markets for sales of non-performing loans (NPL) and to reduce entry barriers for smaller banks and smaller investors. The proposed data templates are built on previous voluntary templates and consider the experience of market participants from the sell- and buy-side and other stakeholders.
Through these draft ITS the EBA is not promoting sales or transfers of NPL as the main NPL reduction strategy and sees them as just one possible tool available to credit institutions. The EBA notes that it is for the credit institutions to determine best NPL reduction strategy in accordance with the EBA Guidelines on management of non-performing and forborne exposures.
New EU disclosure templates
To provide prospective buyers with all necessary information to make an informed decision, credit institutions should use transaction data templates for transfers of non-performing credit agreements, including transfers to other credit institutions.
In practical terms, credit institutions shall provide prospective buyers with the following information on each credit agreement:
- credit agreement;
- collateral, guarantee and enforcement;
- mortgage guarantee; and
- historical collection of repayments.
This information should be provided in accordance with the criteria and definitions laid down in the data glossary and with the instructions set out in Annexes.
Information granularity, completeness, and accuracy
The data templates should be proportionate to the nature and size of credits and credit portfolios. To respect the principle of proportionality, the transaction data templates should require different information depending on the nature and size of the non-performing credit agreements and should specify the data fields that have to be completed or specify the circumstances under which it is not mandatory to complete certain data fields.
Credit institutions shall provide prospective buyers in an electronic and machine-readable form. This will require banks to introduce specific processes in order to do so.
Treatment of personal data and confidential information
Credit institutions shall identify information that is to be considered confidential and ensure adequate protection of such information. In order to do so, credit institutions and prospective buyers shall enter into confidentiality agreements and shall use secure channels including virtual data rooms or similar electronic means to provide the information.
Credit institutions should not use such disclosure templates in the case of complex transactions, when selling or transferring other types of contracts, including:
- credit default swaps, total return swaps and other derivative contracts, insurance contracts and sub-participation contracts;
- sales or transfers of transferable securities, derivatives, or other financial instruments;
- sales of NPLs as part of sales of branches, sales of business lines or sales of clients’ portfolios which are not limited to NPLs, and transfers of such loans as part of an ongoing restructuring operation of the selling credit institution within insolvency, resolution, or liquidation proceedings.
Following its adoption by the European Commission, the Implementing Regulation has now be published in the Official Journal of the European Union on 29 September 2023 and will apply 20 days after publication (as of 19 October 2023).