ECB Consults on Managing Legacy NPEs in Less Significant Institutions

•On 15 September 2025, the ECB launched a public consultation on a draft Guideline aimed at harmonising the supervisory approach to non-performing exposures (NPEs) held by less significant institutions (LSIs) across the euro area. The consultation period runs until 27 October 2025, after which the ECB will publish received feedback alongside the finalised Guideline and a feedback statement. The ECB anticipates that the approach’s impact on LSIs will be manageable, based on a detailed impact assessment.

•LSIs, which are smaller banks supervised by national competent authorities (NCAs), continue to experience elevated NPE levels compared to their larger counterparts — significant institutions (SIs) — despite overall reductions in NPE ratios across the banking sector. Legacy NPEs, particularly those originated before 26 April 2019 and not subject to Capital Requirements Regulation (CRR) deductions, pose a risk to financial stability and constrain lending capacity.

•The draft Guideline, developed in collaboration with NCAs, establishes supervisory expectations for the coverage of legacy NPEs. While setting a harmonised framework, it allows NCAs to retain supervisory discretion within the Pillar 2 framework, tailoring implementation to the specific risks and contexts of each LSI. Importantly, NCAs will annually determine the scope of application, adopting a risk-based, non-distortive approach.

•This framework draws from the ECB’s successful 2018 approach applied to SIs, adapting it for the LSI context. It includes phased implementation from 31 December 2025 to 31 December 2028, aiming to minimise adverse impacts. A concise reporting template, aligned with existing COREP requirements, will support supervisory monitoring without imposing excessive burdens.

Original source: https://www.bankingsupervision.europa.eu/framework/legal-framework/public-consultations/html/npe_lsis.en.html