Embedding the NPE strategy
As the execution and delivery of the NPE strategy will involve and depend on many different areas within the credit institution, it should be embedded in processes at all levels of the organisation, including strategic and operational, including the risk committee as defined in Article 76(3) of Directive 2013/36/EU.
Credit institutions should emphasise to all relevant staff the key components of the NPE strategy in line with the approach taken to the institution’s overall strategy and in particular the risk strategy as defined in Article 76 of Directive 2013/36/EU. This is especially important if the implementation of the NPE strategy will involve wide-ranging changes to business procedures.
Credit institutions should clearly define and document the roles, responsibilities and formal reporting lines for the implementation of the NPE strategy and operational plan.
Staff and management involved in NPE workout activities should be provided with clear individual (or team) goals and incentives geared towards reaching the targets agreed in the NPE strategy and operational plan. Related remuneration policies, career development objectives and performance monitoring frameworks should take the NPE targets into account in order to ensure the full engagement of staff and management with NPE reduction and should also have regard to the fair treatment of consumers. The incentive scheme for staff and managers in the loan origination/business units should also take into account the feedback from the workout activities and the quality of the credit institution’s exposures in order to disincentivise excessive risk taking. With regard to retail exposures, these remuneration policies should be developed in accordance with the EBA Guidelines on remuneration policies and practices related to the sale and provision of retail banking products and services.(18)
All relevant components of the NPE strategy should be fully aligned with and integrated into the business plan and budget, including all the relevant costs associated with the implementation of the operational plan, and also potential losses stemming from NPE workout activities.
The NPE strategy should be fully embedded in the risk management framework. In that context, special attention should be paid to:
a) ICAAP:(19) all relevant components of the NPE strategy should be fully aligned with and integrated into the ICAAP. Credit institutions should prepare quantitative and qualitative assessments of NPE developments under base and stressed conditions including the impact on capital planning.
b) RAF:(20) RAF and NPE strategies are closely interlinked. In this regard, there should be clearly defined RAF metrics and limits, approved by the management body, that are in alignment with the core elements and targets forming part of the NPE strategy.
c) Recovery plan:(21) where NPE-related indicator levels and actions form part of the recovery plan, credit institutions should ensure that they are in alignment with the NPE strategy targets and operational plan.
Credit institutions should ensure a high level of monitoring and oversight by the risk management functions in respect of the formulation and implementation of the NPE strategy and operational plan.