Human resources
Credit institutions should have in place an appropriate organisational framework relative to their business model and taking into account their risks, including risks stemming from NPEs. Credit institutions therefore should devote an appropriate and proportionate amount of management attention and resources to the workout of NPEs and to internal controls on related processes.
Sharing management and resources with other parts of the value chain (e.g. loan origination) should be carefully reviewed before implementation in order to avoid conflicts of interest and to ensure sufficient specialisation, as discussed above.
Based on the findings of the credit institution’s NPE self-assessment on capabilities, as referred to in section 4.2.1, credit institutions should regularly review the adequacy of their internal and external NPE workout resources and address any human resourcing gaps in a timely fashion. As workout activities may place significant demands on resources, credit institutions should consider if it is appropriate to choose to use fixed-term contracts, internal/external outsourcing or joint ventures for NPE workout activities. However, the final responsibility for these activities remains with the credit institution. In the event that outsourcing is used, credit institutions should ensure that such outsourcing is arranged in accordance with the applicable legislation or regulatory requirements.
Credit institutions should build up the relevant expertise required for the defined NPE operating model, including the NPE WUs and internal control functions, in line with the provisions of the joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders.(26) Staff allocated to key NPE workout tasks should have specific NPE expertise and experience. Credit institutions should implement adequate and dedicated NPE training, including on consumer protection, and should design staff development plans to build in-house expertise using available talent.
Where it is not possible or efficient to build in-house expertise and infrastructure, the NPE WUs should have easy access to qualified independent external resources (e.g. property appraisers, legal advisors, business planners, industry experts) or to dedicated NPE servicing companies.
The credit institution, in alignment with the overall NPE strategy and operational plan, should implement an appraisal system tailored to the requirements of the NPE WUs. The appraisal system should be designed in line with the provisions of the EBA Guidelines on sound remuneration policies(27) and Article 7 (opens EUR-Lex in a new tab) of Directive 2014/17/EU (opens EUR-Lex in a new tab),(28) as well as for retail exposures, those of the EBA Guidelines on remuneration policies and practices related to the sale and provision of retail banking products and services.(29) The appraisal system should be mainly linked to the quantitative elements of the credit institution’s NPE targets but may also include qualitative elements (level of technical abilities relating to the analysis of financial information and data received, structuring of proposals, quality of recommendations or monitoring of restructured cases, as well as effective negotiation skills). The performance of the NPE WU staff should be regularly monitored and measured against these targets either on an individual basis or at team level, as appropriate.
The performance measurement framework for the management body and relevant managers should include specific indicators linked to the targets defined in the credit institution’s NPE strategy and operational plan. The weights given to these indicators within the overall performance measurement framework should be proportionate to the severity of the NPE issues faced by the credit institution.
Addressing early warnings signals and indicators should be encouraged by credit institutions through the remuneration policy and incentives framework in order to ensure that pre-arrears are efficiently addressed and NPE inflows thus effectively reduced.