The EU Harmonised Definition of Non-performing Exposures: Origins, Main Features and Possible Improvements

Remi Boutant

The previous chapter described the benefits of common definitions of risk metrics and the process that led eventually to the harmonisation of reporting standards in the EU. This chapter will narrow down the discussion to the introduction of common European concepts for non-performing and forborne exposures.

In July 2015, for the first time in Europe the European Banking Authority (EBA) released figures for the ratio of non-performing loans (NPL) in the EU, plus Norway, according to the new harmonised definition of non-performing exposures (NPEs) used in the supervisory reporting for banks. This represents the achievement of work that started in 2013 to harmonise a key concept commonly used in credit quality assessment across the world, but for which there were almost as many different definitions as there are European jurisdictions.

The adverse economic situation that Europe has been experiencing since the beginning of the decade, and the scattered landscape as regards the existing definitions of NPL,¹¹This chapter uses interchangeably the concept of non-performing loans (NPLs) and non-performing exposures (NPEs) with the same meaning. The EU definition is actually a