Guideline (EU) 2025/2595 of the European Central Bank of 10 December 2025 on the supervisory approach by national competent authorities to coverage of non-performing exposures held by less significant supervised entities (ECB/2025/40)

This Guideline specifies the supervisory approach which NCAs shall use for reviewing the provisioning policies and treatment of assets in terms of own funds requirements of less significant supervised entities established in the same Member State as the relevant NCA.

For the purposes of this Guideline, the definitions contained in Article 4 of Regulation (EU) No 575/2013, Article 2 of Regulation (EU) 2017/2402 of the European Parliament and of the Council , Article 2 of Regulation (EU) No 1024/2013 and Article 2 of Regulation (EU) No 468/2014 (ECB/2014/17) apply. The following definitions also apply: (1) ‘reporting reference date’ means 31 December of a given calendar year; (2) ‘non-performing exposure within the scope of this Guideline’ means an exposure that meets the conditions for derogation from Article 36(1), point (m), of Regulation (EU) No 575/2013 as provided for in Article 469a of that Regulation; (3) ‘technical guarantee’ means in relation to an exposure a guarantee which guarantees the ability of the debtor to comply with contractual non-economic obligations such as the supply of goods or execution of works towards a third party and which does not have the character of a credit substitute.

1 NCAs shall apply the supervisory approach set out in this Guideline with respect to all less significant supervised entities at the highest level of consolidation within the participating Member States.

2 By way of derogation from paragraph 1, an NCA may decide not to apply the supervisory approach set out in this Guideline to a less significant supervised entity for a given reporting reference date if this less significant supervised entity meets at least one of the following conditions at the highest level of consolidation: (a) the less significant supervised entity’s total gross carrying amount of non-performing loans and advances represents less than 5 % of the less significant supervised entity’s total gross carrying amount of loans and advances. In calculating the sole ratio that is to be assessed against the threshold of 5 %, loans and advances classified as held for sale, cash balances at central banks and other demand deposits shall be excluded both from the denominator and the numerator; (b) the less significant supervised entity’s total amount of non-performing exposures within the scope of this Guideline as defined in Article 2(2) represents an insignificant share of the less significant supervised entity’s total amount of non-performing exposures; (c) the less significant supervised entity is subject to an ongoing orderly wind-down process; (d) the less significant supervised entity is subject to an ongoing merger with another supervised entity, or is in the process of being acquired by another supervised entity; (e) the less significant supervised entity is a ‘specialised debt restructurer’ as defined in Article 36(5) of Regulation (EU) No 575/2013; (f) the less significant supervised entity is subject to specific and factual circumstances that, in the view of the relevant NCA, make the application of this Guideline inappropriate, taking into account the objectives and principles of Regulation (EU) No 1024/2013 and, in particular, the need to ensure the consistent application of high supervisory standards.

3 Following their assessment of paragraph 2, points (a) to (f), NCAs shall accordingly inform the less significant supervised entities established in their respective Member States to which the framework set out in this Guideline, and the associated reporting requirements defined in Article 7, apply for a given reporting reference date.

4 NCAs shall inform the ECB on a regular basis of the application of the exemptions applied pursuant to paragraph 2, including the underlying assessments of the NCAs concerned.

1 NCAs shall apply the supervisory approach set out in this Guideline with respect to non-performing exposures within the scope of this Guideline.

2 Underlying exposures of traditional or synthetic securitisations shall remain outside of the scope of this Guideline if either one of the following conditions is met with respect to those exposures: (a) the less significant supervised entity has achieved significant risk transfer (SRT) in accordance with Article 244(1), point (a), or Article 245(1), point (a) of Regulation (EU) No 575/2013; (b) the less significant supervised entity follows the full deduction approach in accordance with Article 244(1), point (b), or Article 245(1), point (b), of Regulation (EU) No 575/2013.

3 Upon the request of a less significant supervised entity, NCAs may decide not to apply Article 5 to individual exposures or portfolios of exposures based on specific circumstances demonstrated by detailed and robust evidence submitted by the less significant supervised entity. On the basis of said evidence, NCAs shall assess and decide upon the less significant supervised entity’s request.

4 For the purpose of paragraph 3, specific circumstances shall include any of the following situations: (a) ongoing regular payments of principal and interest, based on the official debtor’s cash flows, will lead to full repayment; (b) the coverage of NPEs would, in combination with Pillar 1 capital requirements for credit risk, result in more than 100 % of the exposure being covered; (c) the exposure relates to technical guarantees.

1 NCAs shall assess less significant supervised entities’ coverage of non-performing exposures within the scope of this Guideline on the basis of the amount determined in accordance with Article 47c(1), point (a), read in conjunction with Article 47c(2), (3), and (4) of Regulation (EU) No 575/2013.

2 In determining less significant supervised entities’ amounts of coverage which are to be assessed against the amount specified in paragraph 1, NCAs shall take into account the items listed in Article 47c(1), points (b)(i) to (vi), of Regulation (EU) No 575/2013.

1 NCAs shall use the outcomes of their assessments of less significant supervised entities’ coverage of non-performing exposures within the scope of this Guideline as part of the supervisory review and evaluation process referred to in Article 97 of Directive 2013/36/EU of the European Parliament and of the Council .

2 If, after giving due consideration to the specific circumstances presented by a less significant supervised entity, an NCA finds that the coverage of non-performing exposures within the scope of this Guideline is insufficient, it shall consider adopting a supervisory measure based on the national legislation transposing Article 104 of Directive 2013/36/EU or equivalent supervisory powers available in national legislation.

1 For the purpose of conducting the assessment described in Article 5, NCAs shall require less significant supervised entities to report detailed data on the coverage of their non-performing exposures within the scope of this Guideline for each reporting reference date.

2 The templates to be used for the reporting referred to in paragraph 1 shall be prepared by the ECB in cooperation with the NCAs.

3 NCAs shall share the information referred to in paragraph 1 and submitted to them by less significant supervised entities with the ECB for use as part of its oversight mandate.

1 NCAs shall assess coverage of NPEs in accordance with Article 5 of this Guideline as of the reporting reference date of 31 December 2028.

2 By way of derogation, for the first three reporting reference dates following the notification of this Guideline to the NCAs the following shall apply: (a) for the purpose of assessing coverage of NPEs referred to in Article 5(1) for the reporting reference date of 31 December 2025 (i) the factor specified in Article 47c(2), point (b), of Regulation (EU) No 575/2013 shall be replaced by 0,60; (ii) the factors specified in Article 47c(3), points (d) to (i), of Regulation (EU) No 575/2013 shall be replaced by 0,60; (iii) the factor of 1 specified in Article 47c(4), point (b), of Regulation (EU) No 575/2013 shall be replaced by 0,60; (b) For the purpose of assessing coverage of NPEs referred to in Article 5(1) for the reporting reference date of 31 December 2026 (i) the factor specified in Article 47c(2), point (b), of Regulation (EU) No 575/2013 shall be replaced by 0,70; (ii) the factors specified in Article 47c(3), points (e) to (i), of Regulation (EU) No 575/2013 shall be replaced by 0,70; (iii) the factor of 1 specified in Article 47c(4), point (b), of Regulation (EU) No 575/2013 shall be replaced by 0,70; (c) For the purpose of assessing coverage of NPEs referred to in Article 5(1) for the reporting reference date of 31 December 2027 (i) the factor specified in Article 47c(2), point (b), of Regulation (EU) No 575/2013 shall be replaced by 0,80; (ii) the factors specified in Article 47c(3), points (g) to (i), of Regulation (EU) No 575/2013 shall be replaced by 0,80; (iii) the factor of 1 specified in Article 47c(4), point (b), of Regulation (EU) No 575/2013 shall be replaced by 0,80.

3 By way of derogation from Article 6 of this Guideline, for the first reporting reference date following the notification of this Guideline to the NCAs, an NCA may decide not to use the outcomes of the assessment of less significant supervised entities’ coverage of non-performing exposures as part of the supervisory review and evaluation process.

This Guideline shall take effect on the day of its notification to the NCAs of the participating Member States.

This Guideline is addressed to the NCAs of the participating Member States and the ECB.