The European Central Bank has revised its supervisory expectations for banks' provisioning for new nonperforming exposures, saying the decision took into account the adoption of a new EU regulation outlining Pillar 1 treatment for NPEs and is aimed at making the treatment of such exposures more consistent.
As a result, banks will now have three years to set aside provisions against unsecured NPEs, nine years for real estate-backed NPEs and seven years for other secured NPEs, in line with the time frame set by the regulation.
The ECB said its supervisory expectations for new NPEs under its previous Pillar 2 approach, under which banks will have two years and seven years to set aside provisions for unsecured and secured NPEs, respectively, will now be limited to exposures not subject to the Pillar 1 treatment, or NPEs arising from loans originated before April 26.
The central bank said, however, that it could still apply Pillar 2 measures "if the specific circumstances really warrant them."
