4.3.1 Strategy implementation options

Credit institutions should consider including a combination of strategies and options in the NPE strategy to achieve their objectives over the short, medium and long term. In order to successfully operationalise the NPE strategy, credit institutions should consider at least the following non-mutually exclusive implementation options for different portfolios and under different conditions:

• a) Hold/forbearance strategy: suitable workout strategy and forbearance options. The hold strategy option is strongly linked to the credit institution’s operating model, forbearance and borrower assessment expertise, operational NPE management capabilities, outsourcing of servicing and write-off policies.
• b) Active portfolio reductions: sales, securitisation or, in the case of NPEs that are deemed unrecoverable, write-offs. This option is strongly linked to adequacy of impairments, collateral valuations, quality of exposure data and investors’ demand for NPEs.
• c) Change of type of exposure or collateral, including foreclosure, debt to equity swapping, debt to asset swapping or collateral substitution.
• d) Legal options: including insolvency proceedings or out-of-court solutions.

Credit institutions should identify medium- and long-term strategy options for NPE reductions that may not be achievable immediately, for example due to a lack of immediate NPE investor demand, which might change in the medium to long term. The operational plan may therefore need to allow for such changes and require preparations for them, for example by enhancing the quality of NPE data in order to be ready for future investor transactions.

When a credit institution concludes that none of the above options will lead to a sufficient NPE reduction in the medium to long term for certain portfolios or individual exposures, this should be clearly reflected in a timely impairment and write-off approach.

Credit institutions aiming to engage in complex processes, such as NPE risk transfer and securitisation transactions, should conduct robust risk analysis and have adequate risk control processes in place.¹⁷

¹⁷ As required for securitisation under Article 82(1) of Directive 2013/36/EU.