Public consultation on a draft Guideline for a harmonised supervisory approach to the coverage of NPEs held by LSIs

While NPE ratios have significantly declined over the past decade, thanks in part to the common supervisory approach for SIs, some LSIs continue to face challenges in managing their legacy NPEs. This is reflected in NPE stocks which have remained on their balance sheets for longer and have lower coverage ratios compared with those held by SIs. Legacy NPEs constitute lasting sources of potential further losses and restrict banks’ capacity for new lending.

The draft Guideline addresses national competent authorities (NCAs) as the direct supervisors of LSIs. It focuses on ensuring sound risk management and consistent supervisory standards, while allowing NCAs to exercise supervisory discretion within the Pillar 2 framework. The ECB supports this through oversight, collaboration and information exchange to foster consistency across European banking supervision. 

By introducing the approach set out in the draft Guideline, the ECB aims to make LSIs more resilient to potential adverse developments in the macroeconomic environment and associated deteriorations in credit quality. 

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