PS14/23 – The non-performing exposures capital deduction
On 13 November 2023, the Prudential Regulation Authority (PRA) released Policy Statement 14/23 (PS14/23), which eliminates the Common Equity Tier 1 (CET1) deduction requirement for non-performing exposures (NPEs) that are treated as insufficiently covered by firms’ accounting provisions.
This modification was proposed by the PRA through a Consultation Paper (CP6/23) issued on 14 March 2023.
The implementation of these changes involves amendments to the following sections of the PRA Rulebook:
The Own Funds and Eligible Liabilities (CRR);
Reporting (CRR);
Regulatory Reporting; and,
Disclosure (CRR).
Implementation:
The amendment removing the NPE deduction comes into effect on 14 November 2023. In practical terms, reporting obligations related to NPE deduction will no longer be applicable starting from the December 2023 submission.
Key Changes:
This PS removes the following reporting and disclosure requirements:
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)’;
Row 0513 ‘(-) Insufficient coverage for non-performing exposures’ from template ‘C 01.00 – Own funds (CA1)’, and from Capital+ templates (PRA101 and PRA102); and,
Adjustments were applied to disclosure requirements (UK CR4 and UK CR5) as well in tandem with these modifications.
How can we help
Banks may face a variety of challenges when understanding or applying the new or changing regulatory requirements - including assessing the impact on the Bank’s governance, systems, data sourcing, training etc. At Katalysys, we have a deep understanding of upcoming changes from the perspective of both regulatory rules and practical implementation.
Our team is supporting a range of clients in this area. Our support offerings include:
Conducting reviews of regulatory returns to verify adherence to both regulatory rules and industry best practices.
Conducting thorough gap and impact analyses, with a particular focus on areas demanding attention, especially in light of new regulatory requirements such as Basel 3.1 rules.
Providing guidance on the implementation of industry best practices pertaining to regulatory reporting.
Documenting bank-specific assumptions and interpretations.
Preparing comprehensive procedure notes to enhance consistency and reduce key-person dependencies.
Conducting workshops or providing training sessions tailored to address the intricacies of regulatory reporting.
Validating systems and calculations to ensure accuracy.
For more information, please contact:
Josh Nowak
Managing Director, Risk & Regulatory Consulting
T: +44 (0)7587 720988
Manish Patidar
Director, Regulatory Consulting
T: +44 (0)7766 001643