European Banking Authority launches a consultation on Guidelines on loan origination and monitoring

With these Guidelines, the EBA aims to reinforce the solvency and financial soundness of institution and increase at the same time the protection afforded to bank customers, by promoting responsible credit granting and an appropriate monitoring of bank customers at risk of default. The aim is to mitigate the risk associated with new loans and promote the prevention and settlement of situations of arrears on credit agreements with bank customers.

Among other aspects, the draft Guidelines:

• Specify the internal governance arrangements that institutions should implement in their procedures for granting and monitoring credit agreements throughout their lifecycle;

• Introduce requirements for borrowers’ creditworthiness assessment;

• Identify factors that institutions should reflect in the cost they charge to customers for credit granting, including the customers’ credit risk;

• Set out approaches for the evaluation of collateral in credit granting, monitoring and revaluation;

• Specify the requirements for ongoing monitoring of the credit quality and the borrower’s financial situation, in order to ensure that it is possible to identify and quantify any changes in their credit risk.

The draft Guidelines also set out the need to consider in credit granting environmental, social and governance factors, anti-money laundering and counter-terrorist financing, as well as technology-based innovation.

The EBA has developed these Guidelines building on the analyses of national experiences and taking into account shortcomings identified in the institutions’ credit granting policies and practices.

The Guidelines in this consultation incorporate – and propose to repeal – the guidelines previously issued by the EBA on the consumer’s creditworthiness assessment in respect of mortgage credit agreements which fall under the scope of Directive 2014/17/EU.

This proposal also built on the EBA Guidelines on arrears and foreclosure, which also provide for the need for creditors to establish procedures for the effective handling of and engagement with bank customers in payment difficulties.

Consultation process

Responses to this consultation can be sent by using the form available on the European Banking Authority’s website by 30 September 2019.