Sector developments and company hires

NPL prudential framework revised
The EBA has published its final report on the draft regulatory technical standards (RTS) amending its RTS on credit risk adjustments in the context of the calculation of the risk weight (RW) of defaulted exposures under the standardised approach (SA) of credit risk. The proposed amendments follow up on the European Commissions’ action plan to tackle non-performing loans in the aftermath of the Covid-19 pandemic, which indicated the need for a revision of the treatment of purchased defaulted exposures under the SA (SCI 24 June). This revision is necessary to ensure that the prudential framework does not create disincentives to the sale of non-performing assets by banks.

The Commission’s action plan specifically asks the EBA to reconsider the appropriate regulatory treatment of the RW for purchased defaulted assets, as laid out in the CRR, which have been sold at a discount – in other words, NPL sales. Under the current regulatory framework, the capital charge for a defaulted exposure may – under certain circumstances - increase after its sale from a risk weight of 100% on the seller’s balance sheet to a risk weight of 150% on the balance sheet of the credit institution buying the assets.

The proposed amendment to the existing RTS on credit risk adjustments introduces a change to the recognition of total credit risk adjustments to ensure that the risk weight remains the same in both cases. In particular, the price discount stemming from the sale will be recognised as a credit risk adjustment for the purposes of determining the risk weight.

By implementing this change through an RTS amendment, the EBA aims to clarify the regulatory treatment of sold NPL assets. The EBA also recommends that the treatment set out in this RTS be directly reflected in the level 1 text, in line with the European Commission’s CRR3 proposal.

In other news…

KBRA acquired
Growth-oriented private equity firm Parthenon Capital Partners has acquired a majority stake in KBRA, for a sale price of approximately US$900m. Under this new ownership, KBRA says it will continue to provide unparalleled service combined with exceptional analysis, thorough research and high-quality ratings. The rating agency has more than 400 employees across its five offices in the US and Europe, and has issued over 51,000 ratings across nearly US$3trn in rated issuance since its inception in 2010.