Governing Council ECB: compliance with the EBA Guidelines amending the Impaired Exposure Disclosure Guidelines

The Governing Council of the European Central Bank has announced its willingness to comply, for institutions under its direct supervision, with the EBA Guidelines amending the EBA/GL/2018/10 Guidelines on the disclosure of impaired exposures. The measures adopted, which will apply from 29 June 2023, make the risk control system more consistent overall.

Orientation

The Governing Council of the European Central Bank (ECB) is the main decision-making body of the European Central Bank (ECB) and is responsible for setting the monetary policy of the European Union. The ECB works closely with the European Banking Authority (EBA) to ensure financial stability in the EU.

In 2023, the European Central Bank will stress test as many as 99 credit institutions among those subject to direct supervision. Specifically, the experts will examine more than 57 of the largest banks operating in the eurozone so as to cover about 75 per cent of the largest bank assets.

The EBA Guidelines, which the ECB intends to follow, are guidance documents that provide recommendations and suggestions to financial institutions to ensure consistency in banking supervision at the European level.

In particular, amendments to the EBA/GL/2018/10 guidelines were introduced to ensure greater transparency and consistency in the disclosure of banks' impaired exposures. These amendments include a clearer definition of impaired exposures and place greater emphasis on the importance of credit quality information for risk assessment.

These guidelines apply to all exposures that meet the definitions of "impaired" and "with lending measures" in Annex 5 of Commission Reg. No. 680/2014 and are aimed at ensuring greater transparency and consistency in banking supervision at European level.

What changes

The main changes to the EBA/GL/2018/10 guidelines include:

• more details on the classification of impaired exposures including the definitions of default and default.
• Greater emphasis on the importance of qualitative information; the guidelines recognise the importance of qualitative information in assessing the risks associated with impaired exposures and encourage banks to provide such information.
• New disclosure requirements on strategies and processes to manage impaired exposures.
• Greater flexibility in the valuation of impaired exposures to reflect the different situations of banks and the markets in which they operate.

Lawyer Micol Marino