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AnaCredit - the Nuanced regulation

I am quite fascinated with the European Central Bank’s (ECB’s) AnaCredit Regulation that came into effect on 18th May 2016 – A regulation that requires granular credit data sets from the national central banks (NCBs) of the member countries based on the data they collect from their constituents- Banks and Credit Institutions. The project was initiated in 2011 and made a regulation in May 2016. Data collection from the NCBs is scheduled to start in September 2018. The objective of ECB in asking for the granular credit data is to integrate and harmonize the national credit registers that will enable ECB to understand the credit Risks being taken by banks both at the Individual borrowers and corporate level.

As the details of the regulations are getting released, it is becoming clear that AnaCredit is a nuanced regulation and requires a closer look as well as a well thought out plan for execution. A simple comparison with the other major regulatory reporting requirement the FinRep / CoRep brings out three critical differences in the construct and design of the regulations (Not speaking of the content here).

  • AnaCredit  is a two step process of submission where the banks and credit institutions submit the relevant loan by loan data to their national central banks who in turn, after processing and enriching where relevant, submit it to ECB unlike the FinRep/ CoRep reporting which is a direct submission by the banks to the regional authority
  • It is granular data at a loan by loan level and not aggregated reporting as in the latter’s case.
  • It is an evolving regulation – most regulations are one might say – but the difference perhaps, is that as banks and credit institutions prepare for implementation, given the timelines, the guidelines on implementations are being rolled out. Important to remember is that the September 2018 timeline is for the NCBs to submit to the ECB, the submission timelines for the reporting agents (Banks & Credit Institutions) will be much earlier, around December 2017 or early 2018, so as to give the NCBs sufficient time to collate, process, enrich and submit to the ECB. 
  • AnaCredit submission by the NCBs to the ECB is harmonized but some flexibility has been given to the NCBs of how they   implement the regulation in terms of what and how the information is collected from their constituents within their jurisdictions.

ECB, post the promulgation of the regulation has released or is in the process of releasing a three part manual* from an implementation stand point.  

  • Part 1 (Released - Nov 2016) – explains the general AnaCredit methodology and provides information about the reporting population and setting up the reporting, including a general description of the underlying data model. This part spells out the scope of national arrangements and national discretions amongst other things
  • Part 2  (Released – February 2017)-  describes all datasets and data attributes of AnaCredit data collection in detail and provides specific reporting instructions.
  • Part 3 (yet to be released) – Will present various case studies and in particular covers special scenarios that require more in-depth explanations. Expected to be issued around May 2017

As the NCBs are detailing the Anacredit implementation approach for their constituents, it is becoming clear that implementation will not be uniform across - there would be geographical variations and local flavors.  The manual of ECB, while is the umbrella guidance and baseline requirement, it is imperative for banks and credit institutions to read them in consonance with the national directive of their NCBs. For example DNB (DeNederlandschebank), the Dutch NCB, clearly spells this out when it says “The Manual does not take into account the specific implementation choices made by the individual Member States. So the Manual should be read taking into account the Dutch implementation and the choices made by DNB.” **.

Therein is one of the most important nuances in the implementation of the AnaCredit regulation – that of national variations. Relevant information on whether or not the NCBs decide to deviate or not deviate as well as national extensions and the timeliness or format of the reporting will be provided by the relevant NCBs. The implementation at the reporting agent’s (Banks & credit Institutions) level will need to be in accordance with their NCB’s directives/ guidance.

In the next blog, I will discuss the areas of national discretions in some detail and the challenges it poses to regional and global banks.


Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 April, 2017, 13:33Be the first to give this comment the thumbs up 0 likes

Interesting regulation. "The objective of ECB in asking for the granular credit data is to ... understand the credit Risks being taken by banks ...".

I'm sure individual banks run their credit decisioning process before sanctioning any and every loan. If ECB were to merely want to "understand" the credit risk, reviewing the output of individual banks' credit decisioning process should suffice. Or, by asking for individual loan-level data, is ECB really planning to second-guess the credit risk judgements of individual banks?

Saloni Ramakrishna
Saloni Ramakrishna - Oracle - Bangalore 26 April, 2017, 13:21Be the first to give this comment the thumbs up 0 likes

Asset quality is a major concern for ECB like for other regulators but is of greater immediacy in the Eurozone given the profitability challenges of the banks. While in "spirit" bank should and in most cases do run "all" the credit decisions through a process with the idea of building and sustaining a healthy credit portfoli the results seem to challenge the premise.

In this context the ECB's idea of collating granular data to "harmonize and Synchronize" the National Credit Registers to have a more holistic and realistic perspective of the credit risks being assumed by the banks individually and collectively and respond timely, if required,is a good move.  

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 April, 2017, 17:26Be the first to give this comment the thumbs up 0 likes

My point is slightly different: When I say banks run credit decisioning process, it doesn't follow that the credit portfolio is healthy. It only follows that the credit risk is as healthy or unhealthy as it is. My original question remains.  

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