LMA responds to the EBA's Consultation Paper on 'Draft Guidelines on loan origination and monitoring'01 October 2019
The Loan Market Association (LMA) has responded to the European Banking Authority's (EBA's) Consultation Paper on 'Draft Guidelines on loan origination and monitoring' (the Consultation Paper).
In submitting its response to the Consultation Paper, the LMA has recognised and welcomed the positive steps being taken by the EBA to reduce non-performing exposures (NPEs) within the loan market. The LMA recognises the importance of institutions having robust and prudent standards for credit risk taking, management and monitoring in order to prevent a build-up of NPEs in the syndicated loan market.
In its response to the Consultation Paper, the LMA has stressed the need for a flexible approach to the application of the guidelines set out in the Consultation Paper (the Guidelines). In particular, given the broad spectrum of transactions, sectors and borrowers which operate within the syndicated loan market, it is essential that the Guidelines should provide flexibility for institutions to deal with the particular nuances arising from the underlying deal structure.
In addition, the LMA has recommended that a grace period be provided for in relation to the implementation of the Guidelines. The LMA believes that the proposed deadline of 30 June 2020 may not allow sufficient time for institutions to fully digest and implement the Guidelines across all relevant product areas. The LMA has also requested that the EBA reconsiders its analysis around the application of the Guidelines to legacy loan agreements since this is likely to create substantial issues for borrowers and lenders alike.
The LMA's response to the Consultation Paper also covers a number of other proposals set out in the Guidelines, including:
Commenting on the Guidelines, Nicholas Voisey, LMA Managing Director, said:
"The syndicated loan market is a mature market in which careful risk assessment procedures already exist in relation to both loan origination and monitoring. For this reason, the LMA believes that most financial institutions which operate in the syndicated loan market will already be applying the EBA's draft guidelines to the extent applicable."
"Whilst we support the rationale behind the publication of the EBA's draft guidelines, we do have some reservations that the strict application of the guidelines may not always lead to the desired outcomes. The syndicated loan market covers a complex range of transactions and the need for flexibility is therefore essential to ensure that a full and appropriate risk assessment is carried out by financial institutions. Accordingly, the LMA has encouraged the EBA to expressly recognise the need for a flexible approach to be taken to the implementation and application of the guidelines by financial institutions and competent authorities."