The EACB welcomes the possibility to comment on the ECB Guideline on the supervisory approach by NCAs to coverage of non-performing exposures held by LSIs.
We support reducing NPLs to strengthen banks and enhance lending capacity. We appreciate the attention to LSIs’ specific circumstances and structural disadvantages compared to the SIs in achieving expected NPL reduction. However, the current ECB approach shows a step back in proportionality and flexibility.
The Guideline goes beyond previous qualitative ECB guidance by introducing quantitative requirements and minimum coverage levels. This limits NCAs’ discretion under the CRD and undermines proportionality by creating a quasi-automatic “second backstop” for LSIs. Moreover, since the draft is intended to be applied directly throughout the SREP, it creates binding pressure with external effects that exceed the ECB’s coordinating mandate under Article 6 SSM Regulation.
Such a measure would entail considerable additional costs for institutions, which stands in conflict with the current EU strategy to strengthen the competitiveness of the European banking sector.