BoE consults on the non-performing exposures capital deduction

The BoE (PRA) has published its consultation paper (CP6/23) on the non-performing exposures capital deduction. The PRA is proposing to remove the Common Equity Tier 1 (CET1) deduction in the PRA Rulebook, which relates to non-performing exposures (NPE) that are treated as insufficiently covered by firms’ accounting provisions.

The consultation is relevant to banks, building societies, PRA-designated investment firms and PRA-approved, or PRA-designated, financial or mixed financial holding companies.

Within the consultation, the PRA makes the point that the NPE deduction was initially devised to provide suitable backstop for the EU as a whole. However, the PRA considers that the NPE deduction does not provide an objectively accurate measure of NPE provisioning levels for those firms regulated by the PRA. Whilst data from 10 UK firms was included within the European Banking Authority’s quantitative impact analysis of EU policy options for an NPE deduction, the EU NPE deduction requirement was not adapted to, or adjusted specifically for UK firms.

The PRA’s proposals would result in changes to the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and the Reporting (CRR) Part of the PRA Rulebook.

The PRA proposes that the changes outlined within the consultation would come into effect the next calendar day after the publication of the final policy, which is anticipated for Q4 2023.

The consultation is open for feedback and comments until 14 June 2023.

FIN. Team