INCENTIVES FOR ADDITIONAL CREDIT CLAIMS 18 JUNE 2020
ON TODAY’S CALL MARCO ANGHEBEN HEAD OF BUSINESS DEVELOPMENT AND REGULATORY AFFAIRS +49 160 415 9944 marco.angheben@eurodw.eu EIRINI KANONI VICE PRESIDENT, BUSINESS DEVELOPMENT +49 151 615 67595 eirini.kanoni@eurodw.eu NICOLA MOSCAN INTERN, BUSINESS DEVELOPMENT +49 69 50986 9315 nicola.moscan@eurodw.eu 2
CONTENT • ADDITIONAL CREDIT CLAIMS (ACC) REGULATORY ASPECTS • OPERATIONAL ASPECTS FOR ACC • ACC ELIGIBILITY CRITERIA • DATA QUALITY VERIFICATION SERVICES FOR ACC • Q&A 3
ADDITIONAL CREDIT CLAIMS REGULATORY ASPECTS MARCO ANGHEBEN
WHAT IS AN ADDITIONAL CREDIT CLAIM? Credit claims - more commonly referred to as “bank loans” - represent a large share of the collateral accepted by the Eurosystem: • The Eurosystem accepts credit claims as collateral in its credit operations in several forms • The term “credit claims” is defined in the EU’s Financial Collateral Directive as pecuniary claims arising out of an agreement whereby a credit institution grants credit in the form of a loan • The Eurosystem accepts several types of credit claims as collateral Source: European Central Bank website 5
EUROSYSTEM ADDITIONAL CREDIT CLAIM FRAMEWORK (1) Eligibility Criteria Non-marketable Assets Type of asset Credit claims Credit standards The debtor/guarantor must meet high credit standards. The creditworthiness is assessed using Eurosystem credit assessment framework (ECAF) rules for credit claims. Handling procedures Eurosystem procedures Type of debtor/guarantors • Public sector • Non-financial corporations • International and supranational institutions Place of establishment of the Euro area debtor or guarantor Currency Euro Minimum size Minimum size threshold at the time of submission of the credit claim for domestic use: choice of the NCB; • for cross- border use: common threshold of € 500,000. • Cross-border use Yes Source: European Central Bank website 6
EUROSYSTEM ADDITIONAL CREDIT CLAIM (ACC) FRAMEWORK (2) Source: European Central Bank website 7
ECB PRESS RELEASE AS OF 7 APRIL 2020 The emergency collateral package contains three main features. 1. Governing Council (GC) decided on a set of collateral measures to facilitate an increase in bank funding against loans to corporates and households. GC decided to temporarily extend the additional credit claims (ACC) frameworks further by: Accommodating the requirements on guarantees to include o government and public sector guaranteed loans to corporates, SMEs and self-employed individuals and households Enlarging the scope of acceptable credit assessment systems used o in the ACC frameworks Reducing the ACC loan level reporting requirements o 2. GC further adopted the following temporary measures: A lowering of the level of the non-uniform minimum size threshold o for domestic credit claims to EUR 0 from EUR 25,000 previously to facilitate the mobilisation as collateral of loans from small corporate entities; An increase in the maximum share of unsecured debt instruments o issued by any single other banking group in a credit institution’s collateral pool. A waiver of the minimum credit quality requirement for marketable o debt instruments issued by the Hellenic Republic for acceptance as collateral in Eurosystem credit operations. 3. GC decided to temporarily increase its risk tolerance level in credit operations through a general reduction of collateral valuation haircuts by a fixed factor of 20%. Full release is available here. 8
COLLATERAL EASING MEASURES IN RESPONSE TO THE COVID-19 CRISIS Loan level data reporting frequency: Monthly to quarterly • Haircut levels: 20% reduction • As of June 2020 9
EXISTING ACC EUROSYSTEM TEMPLATES ACROSS ASSET CLASSES ECB Loan Level ECB Loan Level ECB Loan Level ECB Loan Level Data - Reporting Data - Reporting Data - Reporting Data - Reporting Template Name Template for Template for Template for Template for Residential Consumer SME ACCs Leasing ACCs mortgage ACCs Finance ACCs N° fields 118 159 205 71 N° of ND allowed 18 39 22 20 mandatory fields Source: European DataWarehouse 10
ASSET CLASSES FOR THE ADDITIONAL CREDIT CLAIMS So far Bank of Italy has allowed three asset classes of loans to be part of an ACC portfolio, one new asset class has just been added recently: 1. Residential Mortgages 2. Small and Medium Enterprises 3. Leases 4. Consumer loans [new asset class recently added] More information can be found in the dedicated section of BI website 11
NEW FRAMEWORK FOR GREEK ACC SME/CORPORATE PORTFOLIOS Source: https://www.bankofgreece.gr/trapeza/nomiko-plaisio/keimena-nomothetikoy-xarakthra?topics=aa49dd6e-2904-4e5f-a59d-b2fdd533adc1 12
FRAMEWORK FOR FRENCH ACC PORTFOLIOS Source: https://www.banque-france.fr/politique-monetaire/cadre-operationnel-de-la-politique-monetaire/remise-dactifs-en-garantie-des-operations-de-refinancement-de- leurosysteme/la-mobilisation-des-actifs-remis-en-garantie/mobilisation 13
FRAMEWORK FOR PORTUGUESE ACC PORTFOLIOS Source: https://www.bportugal.pt/page/ativos-de-garantia-pol-mon 14
BANK OF ITALY PRESS RELEASE AS OF 9 JUNE 2020 The new Eurosystem measures are aimed at supporting the credit supply to families and companies and create incentives for Italian banks to access the Eurosystem liquidity. Banks will be able to pledge the following as collateral for Eurosystem’s operations: Homogeneous loan portfolios consisting of consumer credits • issued for families; Resindential mortgage loans within portfolios, regardless of • the debtor’s probability of default (the current 10% threshold has been eliminated), whereas the current loan-to-value (80%) has been increased to 100%. The requirement that only performing loans can be pledged stays in place. Two new sources of creditworthiness evaluation have been introduced: The performance component of the Bank of Italy’s internal • credit quality assessment system (ICAS), with evaluations based exclusively on data from the risk management, to be used for loans issued to small enterprises and pledged as collateral within portfolios of corporate loans; A unique PD and LGD, calculated according to a conservative • approach, to be used for the evaluation of i) loans issued to artisans and small family businesses, pledegd as collateral within corporate loans portfolios; ii) loans pledged as collateral within consumer credits portfolios. These measures will be valid from the 17 June 2020 and will apply until September 2021. The Eurosystem may extend these temporary measures further in the future. Source: https://www.bancaditalia.it/media/comunicati/documenti/2020- 01/CS_ulteriori_misure_ACC_202020609.pdf 15
BANK OF ITALY ANALYSIS ON THE EUROSYSTEM’S EMERGENCY RESPONSE TO COVID-19 Source: https://www.bancaditalia.it/media/notizie/2020/Nota-Covid-collaterale-10062020.pdf 16
EVOLUTION OF ACC PLEDGED IN ITALY OVER THE LAST 9 YEARS 17
ESTIMATED INCREASE OF THE ECB AND BDI GUARANTEES AS OF JUNE 2020 18
OPERATIONAL ASPECTS FOR ACC NICOLA MOSCAN
AVERAGE VALUATION HAIRCUTS APPLICABLE TO ELIGIBLE ASSET CATEGORIES 20
BENEFITS OF ACC VERSUS ABS ACC ABS Legal requirements Country specific Country specific Definition of default Common May vary Rating No Rating required Rating required Documentation Limited Heavy with offering docs, investor reports etc. ECB Templates Auto, RMB, SME, Consumer, Leasing Auto, RMBS, SME, Consumer, Leasing, Credit Cards, DECC Reporting Frequency Every three months Monthly, Quarterly Legal Treatment of loans On-Balance Sheet Off-Balance Sheet Pool size May vary for each reporting period Static or dynamic Loan Credit Quality Performing loans only All loans 21
ECB ABS & ACC ACCOUNT STATUS REPORTING Examples of template differences between the ECB ABS and the corresponding ACC fields ECB ECB Field Field ECB ABS Field Description Code ECB ACC Field Description Code RMBS AR166 Current status of account: AR166 Current status of account: Performing (1) Performing (1) Arrears (2) Restructured - no arrears (2) Default or Foreclosure (3) Arrears (3) Redeemed (4) Performing but removed from pool by Counterparty (4) Repurchased by Seller (5) Redeemed or Prepaid (5) Other (6) Other (6) No Data (ND) SME NA NA AS72 Current status of account: Performing (1) Restructured - no arrears (2) Arrears (3) Performing but removed from pool by Counterparty (4) Redeemed or Prepaid (5) Other (6) May use No Data options Leasing AL122 Current status of account: AL122 Current status of account: Performing (1) Performing (1) Restructured - no arrears (2) Restructured - no arrears (2) Restructured - arrears (3) Arrears (3) Default or foreclosure (4) Performing but removed from pool by Counterparty (4) Arrears (5) Redeemed or Prepaid (5) Repurchased by Seller – breach of reps and Other (6) warranties (6) All 'No Data' options ay be used in this field Repurchased by Seller – restructure (7) Repurchased by Seller – special servicing (8) Redeemed (9) Other (10) All 'No Data' options may be used in this field 12
ELIGIBILITY CRITERIA FOR ACC MARCO ANGHEBEN
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