PS14/23 – The non-performing exposures capital deduction

Following a corresponding consultation in March this year (EventID 20142), the Prudential Regulation Authority has now published its final policy statement (PS14/23) as regards the removal of the Common Equity Tier 1 (CET1) deduction requirement for NPE (that aren’t adequately accounted for) and corresponding reporting templates or items in templates and references thereto.
To recall, this requirement was retained from the EU and mandated that for all newly generated loans that turn into non-performing loans (NPLs) a specified amount is deducted from Tier 1 capital. The reasoning behind this measure was to reduce the stock of NPLs and to provide a minimum deduction in at least the amount of loan loss adjustments. Corresponding to this obligations, banks and building societies had to report on this deduction and calculation thereof in various reporting templates.
Based on the feedback provided by three respondents, which were overwhelmingly supportive of the elimination, the PRA has decided to move ahead just as proposed. Therefore, the deduction requirement is eliminated and the following corresponding reporting templates or items in templates and related references are removed (as quoted).
– row 0513 (ID 1.1.1.25.A) from template ‘C 01.00 – Own funds (CA1)’, the existing Capital+ templates PRA101 and PRA102, and the CP16/22 templates PRA 101a and PRA102a, to remove the requirement to report on the NPE deduction;
– template ‘C 35.01 – NPE loss coverage: the calculation of deductions for non-performing exposures (NPE LC1)’;
– template ‘C 35.02 – NPE loss coverage: minimum coverage requirements and exposure values of non-performing exposures excluding forborne exposures that fall under Article 47c (6) CRR (NPE LC2)’;
– template ‘C 35.03 – NPE loss coverage: minimum coverage requirements and exposure values of non-performing forborne exposures that fall under Article 47c (6) CRR (NPE LC3)’; and
– references to the above templates from the COREP index (CA1).
In response to the feedback received by commenters, the PRA is also removing some other references to the previously required deduction in the COREP reporting instruction, disclosure Template UK CR4, and disclosure Template UK CR5.