INCENTIVES FOR ADDITIONAL CREDIT CLAIMS 18 JUNE 2020 ON TODAYS CALL - - PowerPoint PPT Presentation

INCENTIVES FOR ADDITIONAL CREDIT CLAIMS

18 JUNE 2020

ON TODAY’S CALL

+49 160 415 9944

marco.angheben@eurodw.eu MARCO ANGHEBEN HEAD OF BUSINESS DEVELOPMENT AND REGULATORY AFFAIRS EIRINI KANONI VICE PRESIDENT, BUSINESS DEVELOPMENT NICOLA MOSCAN INTERN, BUSINESS DEVELOPMENT

+49 151 615 67595

eirini.kanoni@eurodw.eu

+49 69 50986 9315

nicola.moscan@eurodw.eu

2

3

CONTENT

• ADDITIONAL CREDIT CLAIMS (ACC) REGULATORY ASPECTS
• OPERATIONAL ASPECTS FOR ACC
• ACC ELIGIBILITY CRITERIA
• DATA QUALITY VERIFICATION SERVICES FOR ACC
• Q&A

ADDITIONAL CREDIT CLAIMS REGULATORY ASPECTS

MARCO ANGHEBEN

5

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
• ut 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

WHAT IS AN ADDITIONAL CREDIT CLAIM?

6

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 debtor or guarantor Euro area 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

7

EUROSYSTEM ADDITIONAL CREDIT CLAIM (ACC) FRAMEWORK (2)

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

government and public sector guaranteed loans to corporates, SMEs and self-employed individuals and households

• Enlarging the scope of acceptable credit assessment systems used

in the ACC frameworks

• Reducing the ACC loan level reporting requirements

2. GC further adopted the following temporary measures:

• A lowering of the level of the non-uniform minimum size threshold

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

issued by any single other banking group in a credit institution’s collateral pool.

• A waiver of the minimum credit quality requirement for marketable

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

• perations through a general reduction of collateral valuation haircuts

by a fixed factor of 20%. Full release is available here. 8

9

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

10

EXISTING ACC EUROSYSTEM TEMPLATES ACROSS ASSET CLASSES

Source: European DataWarehouse

Template Name ECB Loan Level Data - Reporting Template for SME ACCs ECB Loan Level Data - Reporting Template for Leasing ACCs ECB Loan Level Data - Reporting Template for Residential mortgage ACCs ECB Loan Level Data - Reporting Template for Consumer Finance ACCs N° fields 118 159 205 71 N° of ND allowed mandatory fields 18 39 22 20

11

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

ASSET CLASSES FOR THE ADDITIONAL CREDIT CLAIMS

12

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

13

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

14

FRAMEWORK FOR PORTUGUESE ACC PORTFOLIOS

Source: https://www.bportugal.pt/page/ativos-de-garantia-pol-mon

15 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.

BANK OF ITALY PRESS RELEASE AS OF 9 JUNE 2020

Source: https://www.bancaditalia.it/media/comunicati/documenti/2020- 01/CS_ulteriori_misure_ACC_202020609.pdf

16

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

17

EVOLUTION OF ACC PLEDGED IN ITALY OVER THE LAST 9 YEARS

18

ESTIMATED INCREASE OF THE ECB AND BDI GUARANTEES AS OF JUNE 2020

OPERATIONAL ASPECTS FOR ACC

NICOLA MOSCAN

20

AVERAGE VALUATION HAIRCUTS APPLICABLE TO ELIGIBLE ASSET CATEGORIES

21

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

12

ECB ABS & ACC ACCOUNT STATUS REPORTING

Examples of template differences between the ECB ABS and the corresponding ACC fields

ECB Field Code ECB ABS Field Description ECB Field Code ECB ACC Field Description RMBS

AR166 Current status of account: Performing (1) Arrears (2) Default or Foreclosure (3) Redeemed (4) Repurchased by Seller (5) Other (6) No Data (ND) AR166 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)

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: Performing (1) Restructured - no arrears (2) Restructured - arrears (3) Default or foreclosure (4) Arrears (5) Repurchased by Seller – breach of reps and warranties (6) 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 AL122 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) All 'No Data' options ay be used in this field

ELIGIBILITY CRITERIA FOR ACC

MARCO ANGHEBEN

24

With the modififcation of the reporting frequency for LLD from monthly to quarterly, will it apply only for the new ACC portfolios or will it be introduced for the already existing portfolios too?

• The reports’ quarterly frequency will be applied also for the already existing portfolios, whose cut-off dates are

fixed at the end of each quarter and the information duty needs to be fulfilled within a month from the cut-off date. Will the quarterly reporting frequency of LLD apply from the first upload for the ACC portfolios created after the 20 of April 2020?

• With regards to portfolios registered with EDW for the first time, the deadline for the quarterly reporting

requirement of LLD depends on the date when the portfolio will be registered at the Bank of Italy, and it assumes that there would be three months of registration. Will the first European DataWarehouse report need to be fulfilled within the end of July 2020 (end of October 2020 for the second report) for a new portflio created on the 23 of April 2020?

• Therefore, with respect to the loans confered for the first time in April, the EDW reporting requirement (with

cut-off date 30 June 2020) needs to be fulfilled within the 31 of July 2020; similarly, for thte loans confered for the first time in May, the reporting requirement (with cut-off date 31 July 2020) needs to be fulfilled within the 31 of August 2020; after that, the cut-off dates are fixed at the end of each quarter and the reporting requirement has to be actualized within a month from the cut-off date.

CLARIFICATIONS ON THE NEW REPORTING FREQUENCY

Bank of Italy Answers

Source: Banca d’Italia

25

LLD REPORTING DEADLINES FOR ACC PORTFOLIOS

First month delivering the pool to Banca d'Italia First reporting cut-off date Deadline for first reporting submission Second reporting cut-off date Deadline for second reporting submission Third reporting cut-off date Deadline for third reporting submission

Apr-2020 30 June 2020 31 July 2020 30 September 2020 31 October 2020 31 December 2020 31 January 2021 May-2020 31 July 2020 31 August 2020 30 September 2020 31 October 2020 31 December 2020 31 January 2021 Jun-2020 31 August 2020 30 September 2020 30 September 2020 31 October 2020 31 December 2020 31 January 2021 Jul-2020 30 September 2020 31 October 2020 31 December 2020 31 January 2021 31 March 2021 30 April 2021 Aug-2020 31 October 2020 30 November 2020 31 December 2020 31 January 2021 31 March 2021 30 April 2021 Sep-2020 30 November 2020 31 December 2020 31 December 2020 31 January 2021 31 March 2021 30 April 2021 Oct-2020 31 December 2020 31 January 2021 31 March 2021 30 April 2021 30 June 2021 31 July 2021 Nov-2020 31 January 2021 28 February 2021 31 March 2021 30 April 2021 30 June 2021 31 July 2021 Dec-2020 28 February 2021 31 March 2021 31 March 2021 30 April 2021 30 June 2021 31 July 2021 Jan-2021 31 March 2021 30 April 2021 30 June 2021 31 July 2021 30 September 2021 31 October 2021 Feb-2021 30 April 2021 31 maggio 2021 30 June 2021 31 July 2021 30 September 2021 31 October 2021 Mar-2021 31 maggio 2021 30 June 2021 30 June 2021 31 July 2021 30 September 2021 31 October 2021

Example from Bank of Italy ACC reporting frequency requirements

Source: Banca d’Italia

26

‘COVID-19’ CREDIT ELIGIBILITY

The Bank of Italy accept, as collateral for its financing operations, loans indicated in the Law Decree n. 23/2020 of 8 April 2020 called Decreto Liquidità:

• State-guaranteed loans granted to Families and Corporates

Families Sottogruppo attivitá economica (SAE) 614 and 615 Corporates SAE 400 and 499 Pool of Credits

27

HAIRCUT CALCULATION

The Bank of Italy will apply specific haircuts as a function of the best credit worthiness between the debtor and the guarantor. The best rating attributed to Italy will be assigned to the guarantor, hence corresponding to the third Credit Quality Step (CQS).

• Loan with ‘COVID’ guarantee issued to debtor with PD < Country PD

The haircut is calculated on the basis of the debtor’s rating, regardless of the collateral’s percentage coverage

• Loan with ‘COVID’ guarantee issued to debtor with PD > Country PD

Loan calculated on the basis of Italy’s rating for the quote covered by the collateral, while the debtor’s rating is used for the quote not covered by the State guarantee In case the debtor did not have a rating or had one beyond the regulatory threshold (PD > 10%), the haircut applied to the non-guaranteed quote would be equal to 100%.

Source: Trading Economics as of 2020

28

PRACTICAL EXAMPLES OF THE HAIRCUT CALCULATIONS

Based on a guaranteed «COVID-19» loan amount of €100.000 Corporates SAE 400 and 499

Debtor’s PD = 0,05% Collateral coverage = 80% Haircut calculated over €100.000 as a function of the debtor’s PD Debtor’s PD = 4% Collateral coverage = 80% Debtor’s PD = 11% Collateral coverage = 80% Haircut calculated over €80.000 as a function of the State’s PD Haircut calculated over €80.000 as a function of the State’s PD Haircut calculated over € 20.000 as a function of the debtor’s PD 100% Haircut on the remaining € 20.000

Source: Pegaso2000 and European DataWarehouse calculations

DATA QUALITY VERIFICATION SERVICES FOR ACC PORTFOLIOS

EIRINI KANONI

30

DATA QUALITY CONTROLS ON ACC PORTFOLIOS WITH EDITOR

The ED data quality verification services aim at signalling potential inconsistencies and the lack of data (No Data), within the ACC portfolios, before the data is published and made available to the Eurosystem The data quality checks available in EDitor for residential and SME/corporate portfolios operates in three separate steps:

• 1. Upload of the Loan-Level Data (LLD) file in EDitor
• 2. Automatic validation checks are run on the data and errors and potential inconsistencies are identified
• 3. Publication of the LLD file with the Eurosystem

The pre-screening tool verifies the information uploaded in the private area:

• Avoiding subsequent LLD corrections and
• Decreasing the risk of sanctions for lack of data or inconsistencies reported in the LLD file

31

• Data completeness score

based on the ECB matrix

• Data quality checks on ACC

portfolios:

• 300+ validation rules for

ACC residential

• 150+ validation rules for

ACC SME

• Rules for ACC consumer

and leasing portfolios may be developed in the future

EDITOR FUNCTIONALITY FOR ACC (I)

32

EDITOR FUNCTIONALITY FOR ACC (II)

• Data quality checks on the

portfolios and correction

• f inconsistencies
• Potential inclusion of

further loans in the ACC portfolios

33

EDITOR FUNCTIONALITY FOR ACC (III)

• The graph shows the

types of checks available in EDitor

• Data quality checks are

divided in seven different categories:

• No Data (ND) checks
• inter-submission

inconsistencies

• duplicate entries
• negative values
• interfiled

inconsistency

• unusual entries
• format checks

34

IDENTIFICATION OF POTENTIAL INCONSISTENCIES IN THE LLD FILE

By clicking on “Manage Submissions” and then “Results”, it is possible to view the potential inconsistencies within the uploaded but not yet published portfolio. If you click on the download symbol , EDITOR shows the details

• f the potential inconsistencies that have been indicated.

35

DETAILS OF CHECKID AR26/CCR_ND5/A/01

Examples of the details available in EDITOR – CheckID AR26/CCR_ND5/A/01

a) File generated by the EDitor system b) Loan details

36

INCONCISTENCIES RESOLUTION

The details displayed in EDITOR allow for a rapid resolution of the inconsistencies and further inconsistency checks through an additional upload

37

STEPS FOR REGISTERING ACC PORTFOLIOS IN EUROPEAN DATAWAREHOUSE

First Step

Signature on the European DataWarehouse Customer Agreement

Second Step

Registration of Organisation and Users on My ED Account

Third Step

Creation of ACC portfolio in EDitor with specific ED Code identifier

Fourth Step

Upload of ECB Loan-Level Data files in EDitor

Fifth Step (optional)

Potential Data Quality Checks on the portfolio/s (RMB & SME)

Q&A

38

EUROPEAN DATAWAREHOUSE GMBH Walther-von-Cronberg-Platz 2 60594 Frankfurt am Main www.eurodw.eu enquiries@eurodw.eu +49 (0) 69 50986 9017

THANK YOU//CONTACT US

39