EBA NPL templates – Experience from NPL portfolio deals in the CEE / SEE markets
Maximize recovery price and minimize post-sale contingencies in your NPL deal by achieving top quality and above market standard data & documentation readiness throughout the disposal process.
1. What are the EBA NPL templates?
The European Banking Authority (“EBA”) issued the non-performing loan (“NPL”) templates as part of its response to the European Commission and Council calls, to further work on “reducing information asymmetries between potential buyers and sellers of NPLs”.
The standardized templates aim to “…widen the investor base by having lower entry barriers to potential investors, improve data quality and availability, support price discovery and facilitate the development of the NPL secondary market” .
The templates contain a detailed list of data fields required during the initial and confirmatory financial due diligence and the valuation phase within the NPL transaction. They are split into “EBA NPL portfolio screening template” and “EBA NPL transaction templates”, collectively referred to as the “EBA NPL templates”.
The EBA NPL templates offer various benefits for go-to-market preparation of the NPL disposal process, as they:
- contain user instructions, data dictionary, detailed data tape and validation rules;
- provide data fields for different asset types e.g. Residential, Corporate, SME, Auto, Leasing, etc.;
- cover most essential information to perform financial due diligence and valuation, starting with counterparty, collateralization, up to details regarding the current legal procedure;
- include an “importance” flag based on which, the final user may prioritize the needed information on the basis of three categories: critical, important and moderate and
- provide a clear definition of each data field, the type of the field e.g. date, text, number and if the respective field will be affected by the change of the cut-off date during the process.
However, based on our market experience from previous NPL transactions, we identified several possible enhancements to the EBA NPL templates as they:
- do not present a ‘regulatory classification’ flag which separates the information between sub-performing / non-performing, early workout / late workout claims;
- do not include in the validation rules a list of checks to be performed in order to conduct proper consistency and plausibility checks and
- might include in the portfolio screening template a more detailed analysis of the portfolio in scope, such as:
- portfolio legal procedure status: % of ongoing legal procedure exposure to total exposure, total exposure distribution on legal procedure type, % of market value in ongoing legal procedure and % of market value in ongoing auction;
- % of time barred exposure;
- historical recoveries analysis e.g. 6 months recoveries reported to total exposure.
2. Challenges during NPL transactions
Data quality and documentation availability represent two of the major drawbacks during NPL transactions. Can EBA NPL templates address this problem and help sellers and buyers achieve better data quality and availability?
During an NPL transaction, banks are required to prepare on one side the Loan Tape which represents the basis for the portfolio analysis for the investors and on the other side banks are also obliged to prepare the actual loan documentation (collect, scan, anonymize and upload the documents in the Virtual Data Room) for the confirmatory due diligence and later for signing and closing.
When preparing the Loan Tape, the main questions are: how much of the needed data is available in the bank’s system (and can be easily extracted) and is there only one system in which all data regarding borrower, collateral, and the respective legal information is stored?
Unfortunately, for most of the banks in CEE/SEE the crucial data required by investors, such as legal procedure of the debtor, collateral, legal rank, prior charges etc. are not readily available in the bank’s information systems but only in the physical loan documentation. This requires case managers to “manually” go through the documentation of each single debtor and extract the information.
The main challenges of the manual extraction of the respective data are:
- size of portfolio – determines the workload of the case managers (there is a material difference if the target portfolio has 10 debtors or 10.000);
- limited time as NPL transactions have tight deadlines;
- scarcity of resources as day-to-day operations need to be solved as well;
- different data sources g. different departments within a bank, external lawyers, debt collection agencies and
- human error – information erroneously process by case managers.
In addition, the data already available in the system requires detailed quality checks, as it is frequently incomplete, inconsistent or even incorrect.
3. How can Pwc Help?
By successfully completing more than 30 transactions in CEE / SEE with volumes of approx. EUR 10bn in the past 3 years, the PwC team built up vast experience in supporting market participants in best-in class deal advisory. On one hand helping sellers to prepare state-of-the-art marketing documentation of their NPL portfolio for go-to-market and on the other hand providing high data quality assurance to potential buyers.
The team has successfully developed an automated, tailor made data & documentation process, which consists of clearly defined pre-deal steps including inter alia:
- ongoing support and guidance to the sellers when performing manual data extraction (e.g. indication of necessary columns for investor pricing exercise, portfolio sampling in case too granular, etc.);
- confirmation of the initial perimeter understanding incl. analysis of potential critical commercial issues (transferability limitations, reputational risk, syndicated loans etc.);
- deep-dive analysis of the portfolio’s key value drivers (e.g. performed via case managers‘ interviews for top clients & collaterals) reflected in the top debtors‘ case sheets ;
- comprehensive data consistency and plausability checks for go-to-market Loan Tape and
- portfolio post cut-off date („CoD“) updates .
To ensure complete data consistency, plausibility and completeness, the PwC team has developed comprehensive Data Readiness Methodology using advanced data analysis and visualization tools.
Assuring top quality and above market standard data & documentation readiness throughout the entire disposal process helps the sellers maximize the recovery price and minimize post sale contingencies for the debt transactions.
 EBA templates instructions; the first version of the NPL Templates was published by EBA in December 2017 followed by an update in August 2018. https://www.eba.europa.eu/-/eba-publishes-its-standardised-data-templates-as-a-step-to-reduce-npls
 Case sheets are part of the investor data tape package representing additional qualitative information, which cannot be reflected in the Loan Tape e.g. debtors’ background, additional details related to real estate object location & marketability, etc.
 Post cut-of date updates such as e.g. exposure movements, legal procedure development, amount cashed-in post CoD and expected recoveries (e.g. if real estate collateral liquidated by the bank post CoD)
For more information please contact:
Senior Consultant, PwC Austria, FS Deals