The European Association of Co-operative Banks gladly takes the opportunity to respond to the draft EBA Guidelines on loan origination and monitoring.
While acknowledging that the European Council mandated the EBA to outline the supervisory guidance on loan origination and monitoring, we see a number of critical aspects in the approach drafted in the draft EBA Guidelines.
1) The EBA’s proposed Guidelines go beyond what is required by the relevant level 1 legislation. Many requirements of the EBA Guidelines go beyond the CCD and the MCD. The current EBA work overlaps with the Commission’s process to evaluate the CCD, notably on the topic of consumer creditworthiness (Sections 5.2.1 and 5.2.4). The EACB is concerned that, if the two initiatives follow their respective course each in its own timeline, they will lead to two sets of changes that banks will have to introduce in their processes and IT systems in a relatively short timeframe.
2) Proportionality should be further and more prominently spelled out in the draft Guidelines. It is necessary to reflect in an adequately differentiated manner the differences in information and data collection/verification based on the given asset class, whether the loan is a general consumer loan or relates to real estate, purpose, size, amount, duration, complexity and potential risk of the loan.
3) The sensitivity analysis should not be mandatory for small-ticket and/or short-term loans. It is not necessary from the risk point of view due to the low credit amount and would unnecessarily increase the effort and make the lending process slower and more expensive.
4) We are particularly concerned with the approach taken by the EBA to apply similar mortgage credit assessment rules to consumer credits. We strongly believe that this approach is not justified as the size, type, risk and complexity of the credit are not the same.
5) We advocate for a postponement of the implementation date of the EBA Guidelines to allow an adequate adjustment of processes and take into account the related IT challenges and necessary updates. As the CCD and MCD are currently in the process of being evaluated or reviewed, we believe that it cannot be ruled out in this context that there will be changes to the creditworthiness assessment for consumer loans. Implementing these requirements will involve considerable effort and cost for institutions. Therefore, in our response to the EBA consultation we stressed that the Guidelines should therefore be harmonised with the evaluation of the EU Directives in terms of both content and timing.
6) Concerning the proposed definitions, we advocated for a closer coordination between the definition of “consumer” used in the Guidelines and that in Art. 3(a) of the CCD and Art. 4(1) of the MCD.