4.3.2 Targets

Before commencing the short- to medium-term target-setting process, credit institutions should establish a view of reasonable long-term NPE levels, both at portfolio level and at aggregate level. Credit institutions should take into account historic or international benchmarks in order to define reasonable long-term NPE levels.

Credit institutions should include, at a minimum, clearly defined realistic yet ambitious quantitative targets in their NPE strategy, including for foreclosed assets, where relevant. These targets should lead to a concrete reduction, gross and net of impairments, in NPEs, at least in the medium term. While expectations about changes in macroeconomic conditions, when based on solid external forecasts, can play a role in determining target levels, they should not be the sole driver of the NPE reduction targets established.

Credit institutions should establish targets as followings:

• a) by time horizons (short-term (indicative one year), medium-term (indicative three years) and possibly long-term);
• b) by main portfolios (e.g. retail mortgage, retail consumer, retail, small and medium-sized enterprises (SMEs), corporate, large corporate, commercial real estate);
• c) by implementation options (e.g. cash recoveries from a hold strategy, collateral repossessions, recoveries from legal proceedings, revenues from sales of NPEs or write-offs).

The NPE targets for credit institutions should at a minimum include a projected absolute or relative NPE reduction, both gross and net of impairments, not only on an overall basis but also for the main NPE portfolios. Where foreclosed assets are material, a foreclosed assets strategy should be defined or, at least, foreclosed assets reduction targets should be included in the NPE strategy.

The NPE targets should be aligned with the more granular operational targets. Further monitoring indicators can be implemented as additional targets, if deemed appropriate.