Edited by E. Faletti

The climate of uncertainty and market volatility that has characterized recent years, impacting stock prices on the world's major stock exchanges, contrasting macroeconomic data, and declining interest rates in the eurozone, appears to be slowly giving way to cautious optimism: modest growth for Italy signals a gradual exit from the crisis.

The constantly evolving Italian and European regulatory landscape is shifting attention to crucial issues for credit providers: many hot topics need to be addressed and proactively managed within the context of ongoing change that appears to be a constant in recent years.

Among the key issues is the publication on the European Central Bank's website of the "Guidelines for banks on non-performing loans," concerning the identification, measurement, management, and write-off of so-called "Non-Performing Loans" (NPLs), i.e., impaired loans.

The provisions contained in the Guidelines of 20 March 2017 are addressed (MVU).

The Document aims to raise the level and continuity of monitoring concerning NPLs, particularly with regard to the timeliness of provisions and write-offs.

The Guidelines specify, among other things, NPL management strategies, including necessary changes to the bank's organizational structure, with regular independent review and monitoring and specific methods of reporting to the Supervisory Authority, as well as the governance and operational structure of the overall NPL recovery system, including the internal control system and early warning processes.

The document also highlights the relevant aspects for forbearance measures and related recognition processes, supervisory reporting, and public disclosure; the recognition of NPLs, the related qualitative indications on provisions and write-offs, and the guidelines on the definition of NPEs pursuant to Commission Implementing Regulation (EU) No. 680/2014 ("European Banking Authority Implementing Technical Standards on Supervisory Reporting"), with the aim of ensuring consistent application of the past-due and unlikely-to-pay criteria.

Finally, the Guidelines provide guidance for the specific estimation of collective provisions and advances and specify the valuation of guarantees, particularly with regard to the policies, procedures, and disclosures that banks should adopt when valuing real estate guarantees on NPLs. They also include guidance regarding the frequency and methodology of valuations, as well as the valuation of foreclosed guarantees.

The Document defines the Guidelines as “currently non-binding” in a technical-legal sense.