 So, we're right on time. Everybody is sit down. Good afternoon, ladies and gentlemen. And welcome to this public hearing on the draft guidance to banks on non-performing loans. As you know, we published the draft guide on September 12th for public consultation on our banking supervision bedside. The consultation will be open for comments until November 15th. Let me introduce our speakers today. To my immediate right is the Chair of the ECB High-Level Group on Non-Performing Loans and Deputy Governor of the Central Bank of Ireland, Sharon Donnery. To her immediate right is Giuseppe Siani, Deputy Director of Micropudential Supervision 4 in the ECB. Followed by Sharon Finn, Advisor in the Directorate General of Micropudential Supervision 2 and Fleurling, Head of Section in the same Directorate and Peter Walsh, Head of Section in the Directorate General of Micropudential Supervision 3. Sharon, we'll start with a few remarks and then we will take your comments and questions. Sharon, please. Thank you very much. Good afternoon, everyone. So, asset quality remains a serious challenge for many European banks and for the euro area economic recovery. This is because high levels of non-performing loans can constrain both credit growth and economic activity. NPLs tie up the bank capital, restricting banks' ability to undertake new lending. Banks also need to hold additional provisions against NPLs, lowering their net income and reducing profitability. In addition, NPLs can cause uncertainty as to banks' actual financial position, given the inherent judgmental nature of provisioning. This may create profit and loss volatility and vulnerability, as provisions are typically connected to the value of the underlying collateral, which can fluctuate. These factors can also contribute to the cost of funding and to negative or volatile investor sentiment. Addressing asset quality issues has been one of the key priorities for ECB banking supervision since its inception. This began with the 2014 performance assessment and continues through ongoing supervisory engagement with banks. And this is the context in which the high-level group on non-performing loans was mandated by the supervisory board of the ECB that was resistant to the students' problem. While we recognise that the work out of this disorder will take some time, a harmonised approach is necessary for the values. We expect banks to apply the guidance proportionately and with appropriate urgency, in line with the scale and severity of the varied challenges they face. The work draws on supervisory experience from across the Euro area, including in programme countries, where specific actions were taken to tackle this issue. I would also like to take this opportunity to thank the European Banking Authority and the International Monetary Fund for their constructive engagement with us. Peer analysis is a critical component of ECB banking supervision. Considerable work was undertaken by the high-level group in identifying the impediments to speedy NPL resolution. And the recently published stock take contains examples of best practices across eight member states. This work will be extended to all Euro area member states in due course. The stock take highlights how supervisory powers alone cannot solve this problem. Concerted action is needed from all stakeholders including member state governments and relevant EU fora to address this issue over the coming years. Nonetheless, it is clear that banks can and in many cases should be doing more to reduce the level of NPLs and the guidance outlines ECB banking supervision's expectations in this regard. Looking ahead as a next step in developing a consistent supervisory approach to NPLs, we plan to enhance our supervisory dialogue with the banks facing an NPL issue to be ready to act as soon as the guidance is finalised. As Connie mentioned, the public consultation period will end on the 15th of November. I'm now going to briefly walk you through the presentation that's on the screen in a little bit more detail after which we will be at your disposal for questions. So I'm turning now to the presentation guidance to banks on non-performing loans. It's available on the ECB website and there are also copies at the back of the room. This presentation gives a brief overview of each chapter of the guidance and I'm just going to cover some main points for the purposes of this afternoon's presentation. So beginning with chapter 1 of the guidance, which is the introduction, it covers some aspects that I dealt with already briefly in my opening remarks but to emphasise again, as I mentioned already, the guidance is addressed to all significant institutions that supervise direct quality and materiality apply. So for example, the guidance acknowledges that on the introduction and so on may be more relevant for the banks which have high levels. The two need to follow a timely convergence of regulatory and accounting views. Chapter 2 considers issues related to non-performing loan strategies. It begins by discussing the need for banks to assess and regularly review their operating environment to consider their own internal capabilities, störcunditio government, market for potential sales and so on. I am considering the various options that are available to them including for example reduction of debt and forbearance strategies or taking other legal options such as out of court settlements. The chapter also deals with the need for banks to establish targets by portfolio over both the short and medium term. All of those aspects should be supported by operational plans and also discussed with the bank's supervisory team. Chapter 3, which is slide 7 for those following on the slides, highlights issues related to governance and operations, and that this should be a key priority for banks and their boards in particular. The chapter deals also with steering and decision-making by the management body of the bank, including aspects such as approving the NPL strategy and operational plans, overseeing the implementation of that strategy, ensuring sufficient internal control from body and board. Also the need for banks to have sufficient expertise with regard to the management particularly important operational aspects, such as the potential need to establish non-performing and indeed potentially to establish these units for different phases of the NPL life cycle. So for example to make a distinction between managing early versus later rears or managing restructuring and forbearance versus liquidation or court processes separately. The chapter also deals with important elements around having adequate data and also portfolio segmentation. Finally, this chapter also deals with issues regarding the three lines of defense, the control frameworks that should be in place within banks, and key performance indicators which the board can use to ensure that they can monitor progress. Chapter 4, predominantly relating to the NPL, including solutions to the NPL process. A critical issue here is whether banks are offering a fair amount of money to the NPL or clearly to avoid it. So the chapter also considers dealing with issues and assessment processes and the related operations which should underlie this. Chapter 5 includes details around the application of the EBA definition of non-performing exposures, which has been an important step, I think in moving towards a more harmonized definition in our approaches. It also includes elements like how banks should implement these definitions, for example, dealing with past due criterion, unlikely to pay representation for foreign exposures also. This chapter also deals with Turning to chapter 6, which is dealt with on slide 12, this elaborates on impairment and write-offs, including aspects like estimation of provisions for both individual exposures and collective assessment. The purpose of the chapter is to aim to foster timely provisioning and write-off, particularly through internal bank policies, as well as addressing issues such as the assumptions underlying loss given default, cure rates and so on. It also deals with the related evidence and documentation which should underlie these processes. The third part deals with collateral valuation, elements such as the need for strong processes around use of panels of independent appraisers with qualifications of collateral, at least annually, basing valuations on market value and applying adequate discounts for liquidation costs and so on. So this is a very brief overview of the guidance itself, and we are now at your disposal for questions. Thank you. So we have some microphones in the room, if you just raise your hand and then the microphone will come to you. And yes, the gentleman in the phone, and if you would maybe just introduce yourself quickly. Hello. Yeah, thanks. Thanks, Sharon. Tom McElissum, Alvarez and Marcel. Question on targets for banks and how they address it, particularly, you know, you've got high MPL banks that might be MPL rate of 20 percent or more. You might have ones that are medium, and ones that are lower. How do they address that? And then also, how do they address an asset class that actually isn't going to move that quickly, that has kind of legal or judicial or regulatory constraints on it? How did they deal with that type of issue as well? Thanks for the question. So I think the first thing to acknowledge is that the way that we've set out targets in the guidance very much recognizes that banks are in different places. In fact, I think the background to the work recognizes that various banks are potentially in different situations and much of our work has been examining practices that banks have already implemented or have been implemented in some countries maybe and not others. We recognize that different banks potentially have different portfolios. They're in jurisdictions with different economic cycles, for example. And so I think really the intention is for banks to examine all of these issues, as I mentioned in my opening remarks, and then to develop what they propose to be their targets. That will then go through the process of supervisory engagement, I mentioned, where we will discuss them with them, challenge and debate those targets, and determine whether we think they're reasonable or not. I think obviously if there are constraints like legal and judicial ones, in fact these aspects are very well acknowledged in the stock take. And we have seen that there are different practices in some of the different countries that we have looked at. There are also, for example, changes in some legal practices and so on in the different countries that we've looked at and we're well aware of those. So if there are particular issues like that, they can be taken into account in the supervisory dialogue. But I would emphasize that we do expect banks to be ambitious in the targets that they set and to be clear in their engagement with us that overall they are aiming to achieve an objective of the deliberate and sustainable reduction of non-performing loans over a defined time period. So gentlemen in the second row here please. Thank you very much. Peter Onofre from Rai Fasen, Rai Fasen Central Bank. So my question would be at the end of the day, what is the target which you will pursue? Like will this be the cross MPLs, net MPLs or MPLs after the collateral? Because we can see that you are actually collecting all the data, but we are not sure which one of all these possible targets will be the right one for you. For us as we are well-coverage banked, we would kind of prefer the net MPLs after collateral. That's one question and another question. Our markets are that different. We would actually expect or we would appreciate if you could provide the targets for different regions. Let's say Central Europe, Eastern Europe, South Eastern Europe, etc. These are completely different levels of MPLs. So my question would be if this is possible. Thank you. So thank you for your question. Maybe I'll deal with them in reverse. So I think this issue of different targets potentially by different in your case, in the case of your question region, potentially by different portfolio and so on, is recognised in the guidance and the intention is as I said that there will be discussion between individual banks and their supervisors about exactly these elements. So I think we can address that. On the detail of the target in terms of whether it's gross or net and so on, I mean one of the purposes of us collecting detailed data, well it's twofold. I think first of all is to make sure that the bank itself has these data internally within the bank. I think some of our experience would indicate that banks themselves have poor information. So part of the process of collecting data is to make sure that banks themselves are also gathering these data and using it, as I mentioned in the presentation, to monitor progress at their own board for example. But also one of the reasons for us collecting a great deal of data is exactly this so that we can examine various issues about gross versus net provision coverage levels, collateral and so on, and also take those elements into account when we're in the supervisory dialogue process. Maybe also just to complement what Sharon said, maybe we look at all of them because each indicator might serve different purposes. The gross ratio gives us an idea of how the balance sheet is affected by these type of assets. Then you have the net ratio, net of provisions, but this is also important because you might have different provision policies, you might also have different standards across countries, and then of course net of collateral is also looks at the recoverability of the collateral which might very much link to some national specificities in terms of legal framework, like Sharon said at the beginning. So when you talk about targets, we do not want one target, we look at different indicators, and then we can apply that in a different situation like you rightly so asked for. Fernando de la Mora with Alvarez and myself. Thanks for a well thought out and structure guidance on MPLs for the industry. I have a couple of questions related to the organizational and governance requirements raising in your guidance. You talk about the requirement or the recommendation of having a separate workout unit separate from the commercial side of the business, so separate from the loan or regeneration units. At the same time, you talk about the lines of defense model, and you assign the workout units in the first line. Many banks have their workout units in the risk function, which is what you call the second line of defense. So perhaps clarification on the location of this workout unit and in the context of your three lines of defense would be helpful. And then if you could clarify what you mean by management body, you mean the board or an executive management committee, that would be helpful. Thank you. Okay, so maybe just address a few points, and Anne might also have a few thoughts. So the first thing I would say about the separate workout units, which I think we considered in quite a bit of detail, was this issue of best practices. So as I said, much of the work has been about looking at existing practices either within banks themselves or where as supervisors we have seen good practices or national competent authorities have already implemented requirements. I think one of the particular issues for us on this element was having separate workout separate from loan origination in particular. This was partly to do with expertise issues, also to do with things, simple things to do with kind of attention and management oversight and things getting appropriate prioritization and so on. And some banks that have high levels of NPLs, we would see a lack of kind of prioritization or lack of scrutiny on these types of issues. In terms of where it's placed at the moment, I mean, we have examined different aspects. I think we can take into account the feedback that you're giving in terms of where some banks may have these. Certainly in the way we have proposed it at the moment, it's in the first line, but the purpose of the consultation is to hear different views if other people have views on that or if we get particular submissions around that. In relation to the management body issue, clearly across the Euro area, different banks, but also sometimes because of different local legislative arrangements and so on in terms of the structure of executives and management and management bodies and so on are sometimes different and the guidance tries to address some of these differences. But Anne might like to say a few additional words. Sure. So let's start with the EBA definition of management body, which we're actually using exactly the way it's been defined by the EBA, which I've looked it up this morning. I was expecting that question to come. So it's basically the body that's been appointed in accordance with the national law and which is responsible for setting the strategy for setting the objectives and directions and also who monitors and overseas decision making. So in most cases this will be the supervisory board or the board of executive. The first point on the three lines of defence. We know that in practice there are banks that actually use their risk management functions to do the work out. I think in practice that could work however you need a balancing function for these ones as well as they become a profit centre as soon as they take on responsibility for working out these loans. You need a function that actually does play the second line of defence for this activity. I think if that's working I see no problem to keep it the way you've described it. Just to finish up maybe because an important element Alan mentioned there was in terms of the EBA definition and I did mention in my opening remarks about the EBA. So we have had very close engagement with the EBA so to the extent that there are definitional issues and so on we have tried to ensure that they are harmonised with the various EBA definitions and that work together between us and the EBA has been an important element and particularly also for the stock take I mentioned the IMF there was considerable work with them in terms of understanding other practices and so on that could also inform the work. Thank you. Sir Julgariz Italian Banking Association and the European Banking Federation. First of all I would like to praise the work you have done particularly appreciated the rich documentation that provide flavour of how complex and how many factors play in this picture and also the acknowledgement that the process because just because of that is a process of disposal of NPL is a complex process that need many initiatives and time. We will submit several suggestions and so observation I would like just to group them in three main issues just to give you an idea of what kind of suggestions we will provide. The first one relates to the proportionality of cost and benefits. Sometimes there are requirements that are very cost in terms of resources or organizational changes from the point of view of the banks but probably provide very little additional benefit. I make a couple of example the frequency of the reporting. The quarterly frequency is probably too high there is is misaligned with the budget process there are seasonalities with the targets so we suggest to have a biannual reporting and the other one is the in terms of prescriptions I would expect some flexibility in the implementation of the various NPL reduction plan as they may be you know effects on the markets, unexpected consequences, prosaical effects. The second set of observation regard the governance where the prescriptions are very detailed maybe some more flexibility in terms of criteria for independence hierarchical separation and also segmentation of the workout units would be I think advisable and the other thing is for example the it would be better to clarify the perimeter of the client management I mean this unit will focus I assume mainly with the credit risk there are other aspects of the banking relationship that will remain without other units of the bank and finally there are some national specificities that should be taken into account I'll make an example for my country in the definition of foreborn the requirement that there should be a significant amount of repayment of interest and principle is would crowd out some legal say some institutions that were introduced recently in the legislation the Piani di Rissanamento that envisages the possibility of a period of time where the payments substantially are not done thank you okay thank you very much appreciate you're going to send in your comments in more detail but maybe just a few kind of initial reactions I would say on proportionality I mentioned it I think a number of times in my opening remarks and it's clearly addressed in the guidance that this is the manner in which we would intend to implement this I also mentioned that we would look at materiality as well in terms of where a bank is away from implementation of the guidance how material that is and what particular aspects and maybe there are material differences on clearly there are issues around cost of implementation of these types of things I think I did acknowledge also in my opening remarks that you know from a bank's point of view so never mind thinking about the supervisor but even from a bank's point of view having a portfolio of non-performing loans has an impact on capital and how you do business and costs in terms of having to work out loans and so on so clearly there are cost impacts also to consider on the data issue in specifically we look at your comments obviously in detail in terms of your suggestions around the reporting and but as I mentioned in response to a question earlier I think an important element is also making sure that banks themselves have adequate information to assess their own situation and to be able to monitor progress as well so I think the interests of both banks and supervisors are aligned in terms of the type of information that might be required and on governance you mentioned in particular this issue of the segmentation of workout units I think we were struck in the work we did around best practices and so on and I think I mentioned earlier that a number of institutions have done this already and that it appears to be a quite effective approach in terms of having appropriate skills and expertise and emphasis to be dealing with the issue it is obviously primarily focused on credit risk if there are other elements of the relationship with the customer that needs to be managed then that does need to be taken into account and then around definitions and national specificities I think we are aware of these issues and you know on some other aspects of the guidance I think I mentioned it in relation to provisioning earlier you know there were some there were some national competent authorities that have been able to implement some things and others that have not because of different local frameworks local legal frameworks and so on and certainly in the supervisory engagement that will take place between banks and their supervisors this will be taken into account maybe you wish to add something? Yeah maybe one point that also other colleagues can complement that would like to stress based on what Sharon said this guidance has not been developed in a vacuum as Sharon said this really reflect the outcome of a very long and cooperative work with the NCA so this is also one of the objectives to try to map the best practices that we have detected both in banks and also in NCA's so we of course take the cost benefit analysis and the proportionality principle in proper consideration but these are really these are pages underpinned by you know actual implementation sometimes so and also in some even small cases we have seen that maybe the workout unit are present so it's not just an issue of proportionality it's really an issue of effectiveness of what has been done but of course I I leave also to other colleagues to complement given that they have worked more in detail on this. So we've seen we've seen in many countries experiences where even for small banks for example where they have concentrated portfolios of high MPLs if they bring all the resources together in one unit where they have well defined policies and procedures really in the long run they save money because having workout units dispersed or people dispersed across organizations can create a lot of issues in many respects so really there is many many countries which have been the focus of this guidance where dedicated workout units are proving to be efficient effective and are resulting in MPLs reducing so hence when we put it forward in the guidance we really want to stress the fact that this is based on existing best practices and maybe a comment on the on the first question you had regarding for instance frequency of reporting so that's covered in our section or chapter three which we said is actually mainly applicable to high MPL banks if we talk about banks that have 20 30 or 40 percent or even more of MPLs we think quarterly reporting to the board on these topics is actually very very adequate while if you are banked with a much lower level of MPLs obviously there might be room to to just not do it on a quarterly basis fully fully taking that point and then you had a question on the governance and whether you know the handover of the relationship should be in its entirety if you're trying to work out the MPL exposure I think you need to look at the client in the entirety so I maybe you if you would like to to just make specific points on on certain aspects but but in general I'd say it's handing over the relationship at its entirety to to that unit for that time time being so I think that's that's it there's a question in the back here please yeah thank you very much my name is Ingmar Rulfach from the Association of German Banks I have two questions the first one do you have an implementation date for the final guideline and the second question you make several references to other existing standards Ibarati as IFS 9 etc we have the feeling that in several cases you go beyond the existing requirements for example concerning provisioning I think it's on page 65 there's the sentence that if from supervisory standpoint the provision level is not adequate the banks should increase their provisioning level but I think that is a contradiction first of all with IFS 9 and does not really fit to the EBA guideline on expected losses because they are it's said that if the provisions are not adequate there will be capital add-on but here you say directly the provisions so that means the accounting provisions have to be have to be increased okay so thank you for your question in terms of implementation date and firstly I would say that because the guide originates in practices that we've seen already in some cases some of this is already in hand implemented or being implemented in some banks and it's also being discussed with banks that have high level high levels of NPLs already in the context of ongoing supervisory engagement and those banks will be aware of those discussions already and we will indicate however when the guidance is finalized an implementation date but we haven't proposed that just yet but of course it will take into account that banks that maybe haven't looked at these practices and so on yet will need some time to to operationalize them and in terms of your other question as I said in general we have tried to be consistent with other standards around the EBA IFRS etc and we will obviously look at the specific issues that you raise if you have concerns about inconsistency but in general that has been our approach and but we'll take up that comment but maybe you wanted to add something about the interaction with accounting of course it's quite tricky one given the SSM is not formally entitled with accounting powers but maybe and we will look at your comments when you send that but maybe a few comments for clarification from my side first of all the interaction with the between the potential framework and and and the provisions is already covered in the pillar one rules if you know because you know so in under the standardized approach the provisions will reduce you know the exposure at fault which is relevant for the for the calculation card requirements and under IRB we also look at both generic and specific provisions so when you say that if there is a shortfall then you will have an add-on in the first place I would say that under the regulation you would have a deduction from from tier one basically because that's what the CR says having said that however there's also this SM isn't title and to look at ensure that banks implement sound loan loss provisioning so then of course this is nothing new we have done this and discussed this and so it's part of the QR and this work is just a normal continuation that or that work so I don't think that we go beyond I think that we just complement the work that has been done in that in that in other field and also let me say that also you mentioned the FRS-9 and we have already announced that SM has started a targeted assessment also of the banks preparation of FRS-9 together with DBA but also being part of DBA so we work with DBA as we speak on a daily basis we contribute that we attend the same working groups so there is no intention whatsoever to deviate but just to complement the work from a supervisory perspective Gonzalo Gasor's European Banking Federation thanks for this guidance and the the objective of the guidance of raising risk management standards and reduction MPL is obviously something that we serve with the ECB and we would like to arrive at a great achievement with the with this initiative obviously but when we look at the the road until the final target that you are requesting now banks to to establish themselves it is a bumpy road so to say one of the challenges that the ECB will have to deal with and also banks is the the landscape in terms of law legal systems and traditions and rules is is quite divergent across countries and all the more in third countries out of the European Union as well the guidance is meant not to substitute or supersede applicable law what is a good principle my question here is how will the ECB manage the situation when the applicable law is less stringent in some cases more stringent in other cases than the guidance this will probably require a lot of high degree of interpretation and my second question is how does the ECB plan to deploy the assessment and the evaluation of the banks targets and the progress made will it be a joint effort together with the local expertise and knowledge of the joint supervisory teams working together with VG4 for a consistent approach thank you okay thank you very much so maybe also take the last question first so the whole process in terms of the work that we have done in the high level group has been entirely involving all the different aspects internally here within the ECB the national competent authorities and the joint supervisory teams so all of the work is entirely complementary the group itself the high level group which I chair and has representatives of all the the relevant international competent authorities as well as from across the entire ECB internally and while not the purpose of today which is the public facing elements of the guidance there is significant work going on internally with the ECB and the joint supervisory teams in terms of the implementation of the guidance and making sure that the joint supervisory teams are fully aware of the content of the guidance and how it will be implemented and when I say joint supervisory teams I mean for absolute clarity both the staff here in the ECB who are on those teams and the staff who are in the national competent authorities as well so I would say the whole process has been entirely joined up including with DG4 who of course is represented here today by Giuseppe and they have been fully involved in the process on the issue of the targets and the various challenges particularly around legal systems I think you're exactly correct in some cases the legal systems may not go as far as the guidance in some cases they may go further and I mentioned earlier examples where for example around provisioning some national competent authorities had introduced guidance some had powers to introduce further specific requirements and that's not universal across the system I think for the ECB Giuseppe may wish to say more but this is a common issue it arises in some other areas so I know for example in my own country there's a different fitness and probity regime also that applies in other countries so in terms of our ongoing supervision these various different aspects are taken into account all the time I think this particular aspect was one of the reasons why we also did the stock take which was published at the same time as the guidance although not really the focus of today the stock take will also now be extended to the other SSM countries that focused on eight countries in the first round and it in particular called out some of these issues that you mentioned where there are potentially different legal frameworks different judicial frameworks and so on and the purpose of the stock take is to raise awareness of those issues externally but also to support the joint supervisory team so they also know about these potential national differences maybe Giuseppe wants to add something and Peter worked on the stock take so he might wish to say something nothing new right this is the most challenging and fascinating part of this work that you have 19 different regimes but they Peter and I can complement on this sure Giuseppe I'd echo everything that that Sharon has said maybe just to position the stock take itself the stock take of course was published you've seen it on our website its initial audience was actually the JSTs and the guidance team here the team that worked on the guidance and it was designed and we did this with a view to ensuring that our JSTs have full colour and full knowledge of the legal judicial and extrajudicial frameworks in the jurisdictions and where their banks operate so again the idea here is that they would be able to have a fully informed discussion with their banks as they talk through the issues of NPLs with them there's a gentleman over here Martin Zutatski with the German Savings Banks Association let me start with saying that we that we fully support the ECB's decision to make reducing NPLs across the SSM key priority and to follow up on the comprehensive assessment and the EBA definitions of NPE however we would like to make some suggestions regarding especially section 1.2 which is the applicability of the of the guidance the draft there rightly differentiates between high NPL banks and low NPL banks however we believe the differentiation could be a little less ambiguous maybe or even unambiguous and in the sense that the current draft only states that high NPL banks are such banks that have an NPL level that is considerably higher than the EU average I know that it might be hard to put a number on these levels but we would certainly suggest to sort of to sort of try to to make that less ambiguous or maybe you could answer the question why you refrained from from a more concrete definition there in 1.2 secondly any implications for LSIs in our view should be mentioned to to avoid unintended spillovers that should also be done in section 1.2 in our belief thank you okay so thank you for your comments I mean there are data published and so on particularly for example by the EBA around levels of non-performing loans which I think would give an indication of the average I think we were conscious though on the guidance of saying it is intended to apply to all significant institutions and this is where these issues I mentioned earlier about proportionality and materiality are particularly important so even banks that have levels of NPLs which are below the average may have issues that need to be considered by them and their supervisors and of course you could be below average but have a particular issue in one portfolio or something like that which would warrant attention and I think this was the element that we were trying to address and but of course we will take the various comments and feedback into account but this is why I suppose we weren't very specific about a number there is of course issues to do with data and average is changing and so on as well and we wanted to maintain some flexibility in terms of LSIs and I said already it is intended for the guidance to be addressed to significant institutions and that is the purpose I would say though that it draws on practices which I've mentioned a number of times across a number of countries already some practices which have already been applied to LSIs so while I'd say there's no requirement at this stage for the guidance to be implemented by LSIs nor are we specifically addressing the guidance to NCA's for example for them to apply to LSIs I think just in terms of good practices and considering issues that might be useful from their own point of view in those particular banks there may be elements that LSIs would want to consider you want to have something? Okay thank you. Questions? There's another one please in the middle. Hello, Mariano Razzarte from KPMG is just one question regarding the supervisory measures that could be initiated if the guideline is not accomplished by the banks could you be a little bit more specific about those supervisory measures thank you. So I would say as I mentioned already this normal supervision process the supervisory dialogue is clearly a very important element for requirements like those that are set out in the guidance and in the first instance the process is around understanding how much progress the bank has made and how close they are to what's required in the guidance what aspects of that are material or what are not and the supervisory team kind of making an assessment of that and giving feedback to the bank and also understanding what the bank's response to that will be so in terms of if you highlight that you have a particular concern about a bank well what is the bank going to do to address that we can also then take operational acts and place more specific requirements on banks so in Ireland we would call those risk mitigation measures where we would specifically ask a bank to do something governance is obviously a very important part of the guidance so I think options for a dialogue at the most senior level within a bank if they're not making enough progress addressing concerns to the board or dealing with the board and so on so we have various different methods that we consider to escalate. No but just to you know in a nutshell just to say that this is not a parallel supervision all these guidance and all these acts that have been developed by colleagues is fully integrated in the JST ongoing work together with DG4 of course together with the NCA's we are not trying to develop a parallel supervision so the normal escalating procedures would also apply here so like Sharon was saying you have a guidance there is a reverse burden of proof so the banks should explain why they deviate or why they are not able to comply and then the supervisory dialogue is part of this change of views and then you have the operational acts supervisory decision maybe enforcement decision and then maybe also sanctioning procedure decision but it's really the normal escalating process. Yes in front again please. A couple of questions related to a definition of MPL in your document you you provide a broad definition of MPL that covers NPE which would add for variants performing to MPL assets as well as for closed assets so so the scope of the guidance is broad but then when you go to defining what a high MPL bank is it seems that you're using MPL when you are asking to define a strategy is it for MPA or MPL when you say that there is an ICAP for MPL do you are you using the MPA definition or just MPL so clarifying what applies to what would be helpful and maybe clarifying that today would be useful and then secondly when you define high MPL are you thinking about a consolidate at the consolidated group level are you thinking about countries subsidiaries so again clarifying that would be useful. So just on this latter point the guidance is addressed to supervisory to significant institutions and their subsidiaries whether they're national or international so that's the first point and on the definitions I think happy to take on board all of the comments that we get about that we have tried to be I think quite clear around using the definitions that are set out in the EBA and the ITS and so on and but we can obviously look at these if it's felt that further clarifications are required and we look at those if those clarifications are also salt as part of the written comments but Anne has been particularly involved in dealing with the EBA on those aspects so you might like to add on the on the high MPL banks first of all we look at a consolidated level however if you have subsidiaries or significant portfolios with a high level of MPLs we'd still expect you at least to discuss with your JST whether it could make sense to apply parts of the guidance to those subsidiaries or portfolios in question on the NPE, NPA definition so we actually quite I say we are not 100% clear at this stage but I think we've put in the reference to foreclosed assets when we actually put in the high MPL definition so we say even if you don't have high MPR ratio but you have high level of foreclosed assets you would potentially be in scope. Secondly when you look at the strategy section you also see that we would like to see a strategy for reducing foreclosed assets if these are significant and we say significant again means above European average but the point is taken we will have a look whether we can make it even more prescriptive and a bit clearer. Yeah please in the second row. Andrea Filtri, Mediobank equity research head. Just have a question looking more from the standpoint of financial markets that clearly there is a lot of concentration from the markets on MPLs and banks with high MPLs. I wonder how you look at the risk of a potential catch-22 from this initiative and from the general actions of the SSM that the attempt to solve a problem could actually make it bigger. We have got PE firms that are looking to buy MPLs that believe that the SSM action could actually make prices go down and essentially create overhang transferring value from sellers to buyers and shareholders that are concerned about this potential effect and could be reluctant to provide new capital demanded by the banks in order to implement such measures. How are you looking at this potential risk? Thank you. So thank you for the question. I think that the key issue for us as I mentioned in my opening remarks is that this is a significant issue that requires deliberate and sustained progress. I think we have been very conscious of these issues at ECB level and indeed as national supervisors even prior to that this has been a key priority for the ECB for some time. I think the actions that have been taken both before this particular guidance but also in the context of the guidance attempts to take a balanced and reasonable approach. I've been clear today Giuseppe has also been clear previously as has Madam Nui and others that we recognize that this is going to take a significant amount of time to progress and what we're looking for is for banks to have a very clear understanding of the situation that they're in and very clear plans to address them in a reasonable manner which I think we've emphasized a great deal today as part of our ongoing supervisory work and so I think we accept that there is this context of course more widely outside and also issues around the macroeconomic environment and so on that we have to take into account in considering any of the measures that we might take but we have tried to be fair and balanced. No and I think that as also Sharon said we do not only acknowledge the importance of this issue but I think that we also said that how important the development of secondary market is. I think that we also touch a little bit about the stock take. Sometimes there are some legal impediments that seem to constrain a transfer of assets and then again this is just our homework if I may. So just it's not only a guidance on how to conduct micro supervision but also a call on other stakeholders so the member states and also the European Commission to try to look at some legal impediments that based on our work seems to represent a constraint. So just to confirm that we are fully aware of the importance and that's why we are very carefully in delivering messages and also try to ensure that there is proper consideration given to some national specificities like I said. In the front here again please. Yeah just two questions one I want to come back to these this topic of targets again and specifically around the topic of short-term and long-term restructuring for Bairns measures. We've seen in various countries a lot of programme countries where they have been doing a lot of restructuring activity but it has been mainly on short-term and those actually one of the programme countries last year did a report where they actually found that most of the banks were restructuring like hell but they're doing short-term interest only or various capitalisation all this kind of stuff that was not really doing anything to the MPL book and I think it's only if you're asking the banks to set targets yeah they can set targets but are they going to be setting the right targets in the right areas and I'm just interested to know how that's going to happen because we always see when you're dealing with countries you're dealing with banks that there has to be some form of care and stick approach to get you to where you want to be so that's the first question how that's going to work because your paper mentions by short from short-term for Bairns shouldn't be used in financial difficulties but if you need the MPL stock to move you got to be moving much more into long-term and the second thing is more a governance point just around this you mentioned there's an MPL committee and most banks that we've seen have their own credit committee and they're bringing restructuring cases to that committee are you asking for that committee to be kind of spitting to terms of reference who sits in it etc just a bit more guidance on that thank you so actually mentioned the issue you raised I think briefly in the presentation around this well what we used to call an Ireland extent and pretend of offering multiple repeated short-term options and we have tried to address this or be clear in the guidance that this obviously isn't acceptable and in initial discussions with a borrower of course maybe some sort of temporary arrangement is required and but chapter 4 in particular deals with the definitional issues around these types of aspects we've seen some countries and you know where they've gone so far as to develop concepts around you know sustainability of options that are offered to customers and so on and chapter 4 tries to address some of these elements the targets as well in terms of how we set out the approach to targets also tries to address this short-term and longer-term issue and by saying that banks need to be setting targets on both the shorter and longer-term basis as well in terms of the progress that they make so I think we're trying to address the issue from both elements how do banks deal with the borrowers for short-term and long-term and in terms of their wider portfolio or an aggregate level how they set their own targets for progress and so on and in terms of the governance issues I think clearly for any committee or so on within an institution we would expect to see clear terms of references clear processes about how issues go to that committee how they get escalated how decisions are made of that committee and where issues go to if they're not decided at that committee and so on but maybe Ann wants to add something on this particular governance aspect yes so on the governance aspect for high NPL banks we would expect there to be some sort of a separate decision-making process however there might obviously be overlaps you cannot replicate every expert and have him have been sitting there twice so if you have certain experts that sit on both committees so the that committee deciding on the underwriting also designing on the NP process then we would like to see clear measures to manage the potential conflicts of interest it could be as simple as just providing them with targets for both for lending and for restructuring or there might be other more more more complex approaches to ensuring that the interest conflict is mitigated and a quick one on the on the long-term modifications point that you made obviously the targets were setting or the targets were focusing on a very high level but they need to be built up bottom up and we clearly state that these high level targets need to be complemented by meaningful more operational targets and if you look at the example that we give in table one which is the targets that have been implemented in Greece earlier this year you clearly see one of the key targets is how many long-term modifications have they actually implemented and I agree with you that it's this is a very meaningful and very important target indicated to be implemented I think the other element we would expect to see there is that banks are ensuring that they monitor whether arrangements are working or not or whether they're breaking down and and what happens if if for example arrangements break down as a clear indicator that they're not sustainable and how the bank kind of reaction reactions issues that that do break down I think there was yeah over there please Tost Meyer from Deutsche Bank I wanted to link to the two questions before you mentioned for example chapter four and the short term for balance measures and my question is related to portfolio segmentation because we see that retail portfolios are also subject to consumer protection legislation and not only on the national but also on a European level and this might not be fully in line with chapter four so I would be interested in your view on this item and a second question also related to a question before it's on the NPR market so currently Bank Street purchased portfolios different than than self-originated portfolios and also my question would be how your view is on the applicability of the guideline on these two different kind of portfolios within the banks so not only looking on external stakeholders but also on the banks itself sir I missed one thing you said there's where the bank has a portfolio both that originated itself and what it purchased is that what you said okay okay so I think in that case I mean obviously we would have to acknowledge it's a bit like having different elements of the portfolio even if you originated themselves that maybe there are different issues underlying that portfolio and or you've purchased a portfolio where particular actions have or haven't been taken so there's some kind of background context to that and as I said earlier on the purpose of having supervisory engagement and not having a kind of blanket approach to the setting of targets or a standard target for example is to make sure that these different elements can be taken into account and by the supervisors and can be looked at if there are particular issues in the background and on your issue or your question about segmentation I think we have seen in many of the countries that we have looked at that there are these national consumer protection frameworks which are obviously an important element particularly for retail borrowers in terms of how they're treated and are particularly important from a fairness point of view when we have seen a number of examples of those in different countries I don't think we were particularly aware that there was anything in the guidance that would be inconsistent with any of those but again clearly in the feedback process if there are particular issues raised about that we will examine them any other comments any further comments questions over here please so maybe just as we have still some time I will add two questions from life as a point of view one of these questions is we are strongly decentralized we have many subsidiaries in the eastern Europe Russia Ukraine then in south eastern Europe etc my question would be if there is a strategy npl strategy will there be just a single strategy for the complete bank on the consolidated level or will there be also individual strategies for the subsidiaries and there will be one more question which is really related strongly to our business model decentralized business model and that's how should we deal with all the organizational and IT processes if they are already set up locally as the local requirements historically have led to the local solutions then we are in the situation that maybe not in all the cases it would make sense to synchronize and to centralize the requirements so what's your view on the centralized or decentralized solution in regards to the guidance text so on the first issue of the kind of decentralized model that's operated I think the key issue for us is that the bank both in terms of strategy and governance has a clear approach for how it's going to deal with the issue and the overall objective as I mentioned earlier is deliberate and sustainable reduction of npl's if there are particular issues in the structure of a bank to do with its subsidiaries or portfolios and so on which warrant different approaches for different parts of the bank or different approaches for different portfolios clearly we take that into account our key issue is to make sure that there is a strategy that has been set out that it's being monitored and getting appropriate attention at the highest level within the bank including for example by the board that they're actively pursuing that and following it up and making sure it's being implemented and so on including if there are different complementary elements or so on so I don't think there's a particular issue with that in relation to where actions have been taken already and you have I think as you called local solutions and if they make sense and they are clearly delivering the right outcome there's no intention in the guidance to make a bank stop doing something that's reasonable or that is supporting a bank in achieving that objective of dealing with npl's if on the other hand you know a bank is not making progress or the solutions that a bank has not has implemented are not delivering the types of things that we would expect of them or indeed their own board should expect of them in terms of progress then we would obviously want to discuss how the bank was going to address that. Yes so we've come across many examples of that where you have maybe from a group perspective not an npl situation but from a subsidiary perspective there may be a particular type of portfolio type so within the subsidiary it would yes be very important they had a defined segmented npl strategy but also with regards to control and monitoring and oversight it would be very important that the parent company also had a very strong say in what goes on in that subsidiary because of other issues such as liquidity funding etc as you can imagine so again each individual circumstance will be different the overall perspective is the group and the subsidiary needs to be taken into consideration and the JSTs when they roll this out in these in this in these instances will take the individual circumstances into consideration but also think about the overall risk profile of that bank. Any other comments questions? Yes a gentleman here in the third row. Yes and one more question on the prioritization it is clear that banks with high npls will have to take action first and then banks below the average in npls what are they supposed to do looking at this guidance at the distance or checking to what extent they are complying with these best practices what is expected from them or will it be also part of this repvaluation in a lighter way? Yes I think as I said the guidance is addressed to all significant institutions clearly institutions with high levels of npls need to address that more quickly and with more priority and with more urgency than an institution that has lower levels of npls I think the key issue for us is making sure that banks have considered the issues do they apply to them and if they do have they gaps against these expectations on how do they attend to address them and that will be the case even for institutions with lower levels of npls but as I said in my opening remarks we expect all banks all significant institutions to examine the guidance and to consider how it should apply to them and what plans they are going to put in place to deal with the issues that they may have and all of that will be discussed with their joint supervisory teams. So just to compliment that so the technical aspects of the chapter so if you look at the guidance you have chapters one two and three which are very much focused on high npl banks and we've had that discussion already if you look at the latter half of the guidance it's focusing on the technical aspects so provisioning classification class evaluations these are all aspects and activities that every bank has to undertake regardless of the level of their high npls and the methodology which is qualitative in nature should be applied obviously on a proportionality basis but without a doubt these key aspects would apply to all banks. Yes there's another question here. Simon Recker from the German Association of Public Sector Banks. I was wondering in annex seven you suggest several disclosures and according to pillars three of the Basel framework and also of the guidelines and then in page 63 I think you write that these disclosures should be made within the public financial statements so we were wondering whether those disclosures have to be done twice and once in the pillar three framework and in the financial statements or what was your intention on these matters. Thank you. We work closely with IBA on all these particular aspects as you know they are finalising their own consultation process at the moment and our engagement with them is ongoing so final decisions regarding where exactly it will be again we will take your comments on board and those discussions with IBA will influence those decisions. On disclosures as a whole as you know there's a lot of international commentary and focus on disclosures we have ESMA the European Securities and Authorities Director who came out and discussed the importance of enhanced disclosures on MPEs and when you're faced with such a population of banks with high MPLs the benefit of having the IBA ITS disclosed in this manner is quite large in that who are the end users of the financial statements end users are really calling for comparability and traceability so hence when we sat down and looked at this annex seven we thought about what would be the key disclosures that would be needed to allow the end users build confidence etc in the marketplace so while final decisions will be taken about how they're incorporated and as I said other stakeholders will be involved the key aspects of the disclosures will hopefully I suppose create the confidence that's needed in the marketplace and improve market sentiment. Anyone else there's another question over there? Thomas Gerke, Deutsche Bank Frankfurt. I would like to address some questions on chapter seven collateral although it is clearly mentioned in the scope of this chapter that the requirements are said to be in line with the CRR especially article 208 and 229 we feel that there are requirements formulated in your guideline which are much more stricter than the CRR and also there are some wordings that could be understood as that there is an opening clause that is requirements on collateral could be understood and understand also to be regarded without outside NPL loans so my first question is are the requirements definitely only for NPL loans? And the second I would like to add that give you some examples where we see stricter regulations for example in matter of frequency of valuations and the kind of valuations. We have here seen that you require an annual valuation of collateral for security sizing and non-performing loans. Usually a loan which is moved to a workout unit or workout processes if not longer performing is scrutinized and all things are checked especially the collateral. In the following time this loan and the borrower is under strict supervision so we see no need for more strict more frequent valuation. Additionally we see here different wording between valuation and review. It is usually that in the requirements mentioned in the CRR that we have frequent reviews of collateral which means that we look at the collateral and if there's any case any event which provokes a new valuation then we will effect it. But here we have the wording that we need a reevaluation every year which seems very strict and from my point of view I don't see any value and that's any benefit because if you reevaluate a collateral every year you will see the same value. Other questions I have on the restricted usage of index valuations. We have seen here that you have drafted a limit of 300 000 euros and the limit for index valuations currently the CRR has a limit of 3 million. We do not see any benefit and see that in the different regions of Europe there might be different requirements on that so a strict limit of 300 000 for index valuations seems to expect from our point of view. So that's first maybe I have some more questions. Questions in order so with regards to the scope of the chapter so it's the bank should adopt and value immovable property held as collateral for MPLs. So the primary focus of this chapter is MPLs. The second point in respect to the burdening of banks in regards to constant valuations etc in your example of if prior to handing over the case management evaluation has been carried out we recognize that and in practice we recognize that this is what happens. So you will see in the in the chapter we have put a mitigate in there to say that if there is an updated individual valuation on the file within the last 12 months well that will suffice etc so again taking the practicalities of real life into consideration. With regards to the annual MPL based on all the best practices in many different countries we really did see a need for a frequent valuation process especially for banks with high MPLs and as well as many of the jurisdictions that we are looking at the property values are moving quite a lot even in a yearly cycle so again based on the experiences of the jurisdictions which we're looking at and the in the European areas whole we do believe that frequent valuations are needed but again please put forward your comments if you want to discuss a less frequent. With regards indexing it is an interesting point 300,000 may seem quite low there is actually official best practices in some jurisdictions in Europe that have a lower requirement okay so we looked at many different options etc with regards to the indexing limit and again as part of the consultation process we will review that and it needs to be something that fits in with the overall population of course and without a doubt when the JSTs are reviewing these requirements they will look at each individual bank and if there is strong mitigates in place they may be taken into consideration. So thank you just one additional question between the difference between revaluation and review we currently understood the frequency on revaluation as a process to review a collateral and only in case of any event of the probable declining value we revaluate a collateral. So we will look at the wording to make sure that it's clear because it's very clear if somebody picks up from one country it may seem a familiar term and you pick it up from another it may not so I totally take your point of view so the idea is that the collateral would be reviewed on an annual basis and all of the various components of what a review would be okay so whether it's called revaluation review once they once it's carried out that's all we we want to have another question if I may continue in choosing the appraisers we have seen a quite critical link between the fee for the appraiser and the value of the collateral which is come in practice that the fee for the appraiser is linked to the market value of the collateral which we do not see critical because the result of the valuation is not only a market value it's also a collateral lending value which has also a conservative aspect and the additional question is we do not see that you mentioned in the skylands the allowance to use lending values mortgage lending values which is the current practice in Germany and also saw that there is no permitance to use the replacement cost model which is currently in practice for every self-used property residential property at these various elements we can look at these various different aspects that you raise I think the critical issue in this chapter is really around making sure that there are proper governance policies and controls around these issues that firms have proper processes in place and that these are being implemented because clearly you know we would have seen cases where there were issues around value is independence and so on so we can examine the various queries that you raise yes the gentleman in the same room yes 123 you said that I record that it should be made public disclosure on the reconciliation of definitions of non-performing in per default restructured and it should be equally conceptual and also quantitative information on the facts of these conceptual differences proportionality also applies to this disclosure or all banks have to make a specific disclosure making quite a different quantitative so the intention I think around the disclosure elements is that these would apply to all banks yeah and just for context there so as you know we have seen many different definitional basis for impairment and and default and this depending on the country depending on the circumstances so the eba ITS obviously gives us that common definition so hence asking banks in a public disclosures to really reconcile back to the eba ITS and tell us exactly what the differences are both from a qualitative methodology perspective but also from a quantitative perspective again so the end user regardless of what country that that bank is operating understands the basis for why there is a difference so I think this is a critical element to Sharon mentioned earlier in terms of the importance of disclosure this is why it would apply in all cases so any other questions comments yeah just a quick question on you mentioned a peer analysis Sharon earlier on and I think what you've disclosed today has been very helpful to everybody involved in this in this part of the world I'm just interested in what you will be disclosing on a kind of an annual basis because you will have a lot of data I assume that you'll share with the individual banks but will you be disclosing what information will you disclose publicly as well or what do you plan to do in that space I mean so there are various things I suppose that have been disclosed around the npl issue by the ECB as I said starting back with the comprehensive assessment and so on it's been a feature I think of a lot of public statements and speeches it's dealt with in the SSM annual report type publication and so clearly there are some data elements for example actually the ECB already published some data in the macro financial review also so there's elements like that where we will consider obviously publication of data and so on I think an important element in terms of transparency has been the publication of the guidance itself in terms of being clear publicly and externally what our expectations are in terms of the banks themselves they will obviously get specific feedback on their own situation because of this peer analysis element it's also possible for us to give banks feedback about how they compare against their peers and that has been a useful process I think more widely within SSM we've had other cases where that has been used for example around governance and other more thematic work I think that we have done previously and that would also be the intention I think in this case where we'll be able to give banks feedback clearly in terms of public accountability and so on this has been set out as one of the top priorities for ECB banking supervision so in public reporting in the annual report and so on we'd clearly be providing updates on progress as well any other further questions comments anyone if that is not the case then I think we will close the public hearing here thank you very much for coming everybody and yes and you know just as a reminder that the that you can file your comments on the on the website in the template so until November 15th so next week midnight the the site is open for your comments