ECB Annual Report on supervisory activities

• It provides banks with a consistent methodology for the recognition of NPLs and
for the calculation of loan loss provisioning and write-offs in line with
international recommendations and best practices.
• It fosters enhanced disclosures of NPLs in order to increase market confidence.
JSTs have started to actively engage with supervised banks to support the
implementation of the guidance.
Effectively reducing NPLs requires
not only supervisory activities, but
also legal and institutional reforms
Addressing NPLs remains a key supervisory priority of European banking
supervision. However, resolving NPLs depends on the actions of many different
stakeholders; the issue cannot be tackled by supervisors and banks alone. Further
regulatory and policy actions at the EU and national level are needed to remove
obstacles that prevent banks from resolving their NPLs and restructuring distressed
debt.
<strong>ECB</strong> Banking Supervision, together with the NCAs, conducted a stocktake of
national supervisory practices and legal frameworks concerning NPLs in eight
euro area countries. A final report also covering the remaining euro area Member
States will be published in the course of 2017. Some countries have taken proactive
and coordinated prudential, judicial and other measures to tackle the issue. Other
countries could further improve their legal and judicial framework to facilitate the
timely workout of NPLs. In addition, secondary markets for NPLs need to be
developed in order to facilitate sales of distressed assets. In this context, it is
necessary to foster the development of an NPL servicing industry, to improve data
quality and access to data, and to remove tax and legal impediments to debt
restructuring.
1.2.4 On-site supervision
Second cycle of on-site inspections
185
On-site inspections were
approved for 2016
The planning of on-site inspections
was further improved in 2016
The second cycle of on-site inspections was part of the overall 2016 supervisory
examination programme (SEP) planning that was approved in January 2016. In July
2016 the semi-annual planning update cancelled some on-site inspections and
approved additional ones for the second half of the year. In total, 185 on-site
inspections were approved for the year 2016.
To further develop and improve the planning of on-site inspections, the following
strategic actions were implemented in 2016 and used for the 2017 planning cycle.
First, a targeted engagement level formalises the enhanced risk-based approach
by providing indicative targets for the number of missions per institution and topic
over a three-year horizon. Second, the blind spot tracker identifies potential
inspection gaps or outliers that still need to be addressed. Third, the duration of the
missions is shortened to optimise the timely treatment of their findings.
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Supervisory contribution to financial
stability 19