On October. 19, 2023, Regulation (EU) 2023/2083 published in the Official Journal of the European Union on Sept. 29, 2023 containing templates for the transmission of information to buyers on “NPL” credit exposures in the banking book will enter into force. The Regulation is mandatory in all its elements and directly applicable in each of the member states.

This is Regulation (EU) 2023/2083 which outlines implementing technical rules for the application of Article 16(1) of Directive (EU) 2021/2167 of the European Parliament and of the Council.

In particular, the Commission intervened on the issue of the exchange of information between credit institutions and potential buyers of impaired loans, i.e., Non-Performing Loans (“NPLs”),  that is of ex­posures to entities that, due to a worsening of their economic and financial situation, are unable to meet all or part of their contractual obligations. The three current subclasses of impaired loans adopted by the Bank of Italy and which reflect the criteria published in 2013 by the European Banking Authority “EBA”) are the following:

  • non­performing loans that is exposures to entities which are in a state of insolvency or in substantially comparable situations;
  • probable defaults which are exposures other than those classified as non-performing for which the bank assesses that it is unlikely that the borrower will meet its contractual obligations in full, without recourse to actions such as the enforcement of collateral;
  • exposures past due and/or in arrears that is exposures, other than those classified as non-performing or probable de­faults, that are past due, or which exceed credit limits by more than 90 days and are above a predefined ma­teriality threshold.”

Through Directive (EU) 2021/2167, the European Banking Authority had the task of developing draft technical guidelines to specify standard disclosure templates to be used by credit institutions to provide potential credit buyers with information regarding an impaired credit agreement, any rights deriving from it and, where applicable, collateral, thereby seeking to reduce information asymmetries between potential buyers and sellers and facilitate transfers.

The Regulation, which responds to the indications of the aforementioned Directive, contains a se­ries of annexes that provide criteria, tables, definitions, data and instructions to be followed in providing the information indicated in paragraph 1 of Article 3 of the Regulation (counterparty; credit agreement, collateral and repayment collection history). The Commission has also addressed the issue of confidentiality: in providing information to prospective buyers, credit insti­tutions will identify the information that is to be considered confidential under applicable Union law on da­ta confidentiality or banking secrecy, or under their own internal regulations or market practices, and will ensure adequate protection of such information in accordance with applicable Union law on data confidentiality or banking secrecy. Banks must enter into confidentiality agreements draf­ted in accordance with applicable Union law and share personal data prior to the conclusion of a contract for the transfer or sale of impaired credit contracts only to the extent necessary.

It should be clarified that the Regulation does not apply to: (i) sales of impaired credit agreements as part of sales of branches, business lines, or sales of customer portfolios that are not limited to impaired credit agreements and transfers of impaired credit agreements as part of an ongoing re­structuring operation of the selling credit institution under insolvency, resolution, or liquidation proceedings; (ii) sales or transfers of impaired credit agreements by securitization where Regula­tion (EU) 2017/2402 applies and the disclosure of the relevant information is governed by Delega­ted Regulation (EU) 2020/1224 and Implementing Regulation (EU) 2020/1225; (iii) sales or trans­fers of impaired credit contracts under credit default swaps, total return swaps and other derivati­ve contracts, insurance contracts and sub-participation contracts; (iv) sales or transfers of impai­red credit contracts under a financial guarantee agreement or a securities financing transaction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.