NPE workout units
In order to mitigate sufficiently any conflict of interest in managing NPEs, as well as to make good use of dedicated NPE expertise across the organisation, credit institutions should establish dedicated NPE workout units (NPE WUs) that are independent from loan origination activities. This separation of duties approach should encompass not only client relationship activities (e.g. negotiation of forbearance solutions with clients) but also the decision-making process. In this context, credit institutions should consider implementing dedicated decision-making bodies related to NPE workout (e.g. an NPE committee).
Where overlaps with the decision-making bodies, managers or experts involved in the loan origination process are unavoidable, the institutional framework and internal controls should ensure that any potential conflicts of interest are sufficiently mitigated.
Credit institutions should have arrangements in place to ensure that regular feedback between loan origination units and NPE WUs is established.
When designing an appropriate NPE WU structure, credit institutions should take into account the specificities of their main NPE portfolios, including the type of exposure (retail, SME, corporate) and the type of collateral.
Credit institutions should consider designing automated processes for NPE WUs for homogeneous retail NPE portfolios. For corporate NPE portfolios, where relevant, and depending on the sectoral concentration of the NPEs, credit institutions should consider a relationship management approach with sectoral specialisation of NPE WU staff. For sole traders and micro-enterprises, a combination of automated elements and a relationship management approach should be considered.
Smaller and less complex credit institutions (e.g. those that are classified in SREP Category 3 or 4) may have in place dedicated workout functions proportionate to their size, nature, complexity and risk profile. Credit institutions should ensure that the design of such functions prevents and eliminates conflict of interest in the management of NPEs.
For proportionality purposes, smaller and less complex credit institutions (e.g. those that are classified in SREP Category 3 or 4), as an alternative to establishing dedicated decision-making bodies related to NPE workout, may cover the necessary requirements in their existing credit or risk committees, as long as conflicts of interest are sufficiently mitigated.