On June 2nd, the European Banking Authority (EBA) published a guideline with new reporting and disclosure templates to monitor the impact of COVID-19 on European banks. The revised templates are to be reported for the first time per June 30th, giving banks very limited time to implement the necessary changes.
Since the outbreak of the COVID-19 pandemic not only our daily life and work life has changed, also the economy has been affected in a way that especially our generation has never experienced before. Many businesses and in particular private individuals and small and medium-sized enterprises (SMEs) are affected by the crisis and have to face liquidity shortages as well as difficulties to repay their loans in time. To absorb the negative economic consequences of COVID-19 pandemic on the real economy and the financial sector, the European Union and the Member states introduced a wide range of measures.
Beside various legislative moratoria on loan repayments also industry-coordinated initiatives were introduced to grant payment holidays to borrowers in the current situation. A number of Member States also provided public guarantees to collateralize new lending exposures.
In the beginning of April 2020, the EBA published various guidelines on legislative and non-legislative moratoria on loan repayments in the light of the COVID-19 crisis. These guidelines provided guidance on the treatment of such payment moratoria and clarified criteria and conditions on the application of forbearance rules. In addition, these guidelines emphasized the impact of those measures on the prudential treatment of exposures and the assessment of distressed restructuring, but also underlined that a moratorium does not automatically lead to default classification (see also „Supervisory measures in reaction to the Corona crisis“).
As various credit institutions are making use of those general payment moratoria and public guarantees varying in their characteristics and in their duration, it is necessary to monitor those measures in a transparent manner. The monitoring is not only relevant for the risk analysis of the credit institutions but also for the overall financial stability in the EU.
As a consequence, EBA expanded the scope of supervisory reporting and disclosure to gather information on the COVID-19 measures being applied by credit institutions in the EU. Therefore, EBA published its Guidelines on reporting and disclosure of exposures subject to measures applied in response to COVID-19 on June 2nd, 2020.
In order to increase efficiency, EBA focused on the already existing FINREP definitions and technical specifications as well as on the definitions in Pillar 3 disclosure.
Overview of changes in the FINREP reporting templates
The FINREP reporting templates are broadened by eleven new reporting templates in total, to report:
- exposures being subject to payment moratoria in accordance with EBA Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of COVID-9 crisis,
- exposures that are subject to forbearance measures introduced in response to the COVID-19 crisis
- newly originated exposures subject to public guarantee schemes that Member States introduced in response to the COVID-19 crisis.
Our first analysis shows that especially the data base of the already existing reporting templates F06.00”Breakdown of non-trading loans and advances to non-financial corporations by NACE codes” F18.00 “Information on performing and non-performing exposures” and F19.00 “Information forborne exposures” can be used to complete the new templates.
But further, it is also necessary to have an overview on the applied measures to be able to map the exposure to the breakdowns of households and SMEs, with additional information on exposures collateralised by residential or commercial immovable property. In addition, it is required to map the exposures to the different breakdowns by residual maturity of moratoria and also to gather information on the risk-weighted exposure of COVID-19 related exposures. Especially, the distinction between EBA-compliant moratoria and other COVID-19 related measures has to be assessed to make sure the reporting can be provided correctly.
Moreover, credit institutions have to submit information on interest income and fee from loans and advances being subject to COVID-19 measures, what also leads to a granular analysis and breakdown of the balance sheet positions interest income and fees. Further on, the institutions should also report the future oriented numbers – namely the planned positions at accounting year-end with regards to exposure value of loans and advances subject to public guarantee schemes as well as projected interest, fee and commissions income.
Disclosure requirements under COVID-19
Disclosure templates follow the reporting requirements with respect to the data source used and the granularity of information. The EBA envisages three new disclosure templates:
- Template 1: Information on loans and advances subject to legislative and non-legislative moratoria
- Template 2: Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual maturity of moratoria
- Template 3: Information on newly originated loans and advances provided under newly applicable public guarantee schemes introduced in response to the COVID-19 crisis
The EBA considers the proportionality principle, as the regulatory authorities can consider if they want to waive the disclosure requirements for the institutions which are not identified as either G-SII or O-SIIs and if they want institutions to apply these requirements at the highest level of consolidation within a Member State.
Definitions in the templates are based on the EBA Guidelines on disclosure of non-performing and forborne exposures (EBA/GL/2018/10) which the G-SIIs and O-SIIs are already applying. Of course, the existing disclosure templates do not provide information on the measures applied in response to the COVID-19 crisis.
In all templates, total exposure amounts should be disclosed with additional breakdowns of households and SMEs and with additional information on exposures collateralised by residential or commercial immovable property.
With this, the EBA achieves the integrity between reporting and disclosure and eases the burden for the institutions. As the same data sources can be used to populate both sets of required information it makes sense to optimise the process and create a single populating set to fulfil both reporting and disclosure requirements.
Application of the new COVID-19 requirements
The reporting and disclosure framework will be fully integrated in the EBA reporting framework which also includes the needed technical package, covering validation rules, the data point model and the XBRL taxonomy. As facilitation, EBA connects the new reporting requirements with the existing planned release of DPM 2.10. The COVID-19 measures will be published as a separate module of DPM 2.10 in June 2020.
As the reporting and disclosure requirements are focusing on the context of the COVID-19 pandemic, they are expected to be time-limited. The first reference date of the reporting will be 30 June 2020 in line with the already existing quarterly reporting of FINREP-templates for an expected period of 18 months.
Disclosure requirements have to be fulfilled semi-annually on 30 June and 31 December. (please click to enlarge)
As those new reporting and disclosure requirements are published at very short notice, credit institutions have to analyze their portfolio under consideration of the new reporting requirements. We are happy to discuss the current changes in a (virtual) workshop and will also be able to support you to fill the new reporting and disclosure templates. Please do not hesitate to contact us!