Guidelines on recovery plans

NBB_2024_06 – 26 March 2024 Communication – Page 1/21 14 Boulevard de Berlaimont – BE-1000 Brussels tel. +32 2 221 54 65 company number: 0203.201.340 RPM Brussels www.bnb.be

Communication
Brussels, 26 March 2024
Reference: NBB_2024_06 your contact:
Claire Renoirte phone +32 2 221 53 50 claire.renoirte@nbb.be

Scope
This communication applies to Belgian credit institutions and Belgian parent undertakings of credit institutions that are not subject to direct supervision by the ECB in accordance with Regulation (EU) No 1024/2013 and to Belgian investment firms referred to in Article 2 of the Act on the status and supervision of investment firms and falling within the scope of Article 13, § 2, of the same Act (hereinafter collectively referred to as “institutions”), with the exception of:

institutions benefiting from a simplified obligations regime. These institutions should prepare their recovery plan in accordance with the Guidelines on simplified obligations regarding recovery plans.
subsidiary institutions of a Belgian parent institution, a Belgian (mixed) financial holding company or a Belgian mixed holding company for which it has not been decided that a recovery plan on an individual basis must be established. These institutions are not required to establish an individual recovery plan.
institutions that are part of a group subject to consolidated supervision where the parent undertaking is established in another EU Member State for which it has not been decided that a recovery plan on an individual basis must be established. These institutions are not required to establish an individual recovery plan.

Summary/Objectives
This communication clarifies what we expect in terms of recovery plans. It is intended to be a user-friendly tool for institutions to establish recovery plans in compliance with the requirements of the Bank Recovery and Resolution Directive (BRRD), the EBA regulatory standards on the content of recovery plans, the EBA guidelines on the range of scenarios to be used in recovery plans, the EBA recommendation on the coverage of entities within a group recovery plan, the EBA guidelines on indicators for recovery plans, and the new EBA guidelines on overall recovery capacity in the context of recovery planning. This communication also refers to the EBA technical advice on the delegated acts on critical functions and core business lines.

This communication replaces the previous communication NBB_2022_07 by incorporating the recently published EBA guidelines on overall recovery capacity in the context of recovery planning. Furthermore, the scope is extended to investment firms.

The recovery plan and the associated tables must be submitted by 15 December of each year via OneGate.

Structure

General overview and motivation
Process for drawing up a recovery plan
Summary of the recovery plan
Governance
Strategic analysis
Communication and information plan
Preparatory measures

Madam,
Sir,

General overview and motivation
A recovery plan is a management strategy aimed at avoiding the default of an institution or a group placed in a serious crisis situation. This strategy excludes any form of exceptional support granted by the State. The purpose of the recovery plan is to help institutions prepare their reactions to potential shocks in order to act more quickly and effectively. The detailed recovery plan set out in this communication comprises five modules.
(a) Summary of the recovery plan: The summary of the recovery plan quickly reviews the main chapters of the plan and summarizes the institution's assessment of its own overall recovery capacity in each of the envisaged scenarios.
(b) Governance: The first part of this module describes the development of the recovery plan. The degree of involvement of the management body is an important element. This first part is an essential component of the recovery plan, which specifies how and by whom the recovery plan was developed. The second part explains when and how the plan can be triggered.
(c) Strategic analysis: The strategic analysis is divided into three parts. The first serves to present a complete overview of the institution's activities and their systemic importance. The second part lists the institution's exposures to its main counterparties. In the third part, the institution should describe the most effective options to be considered to resolve an extreme solvency and/or liquidity shock. Among these options should be initiatives that have the effect of strengthening own funds or liquidity, but also more radical measures aimed, for example, at divesting certain activities or business lines, selling certain subsidiaries, or restructuring debt. (d) Communication and information plan: The institution should also include a detailed communication and information plan detailing its internal and external communication intentions. (e) Preparatory measures: This module describes the measures that the institution has taken or intends to take to facilitate the triggering or execution of the recovery plan.
The effectiveness of a measure described in a recovery plan obviously depends on the scenario to which that measure applies. We leave it to the institution's discretion to choose the scenarios; however, we ask that several extreme but plausible scenarios be considered, and at least one that includes simultaneously an idiosyncratic component and a systemic component. The events specified in the scenario must constitute a threat to the survival of the institution or the group parent entity, or of one or more of its main legal entities, in the absence of successfully applied recovery measures with appropriate timing.
The scenarios must appropriately take into account all relevant risk exposures for the institution and, in particular, among other relevant factors, its business model, its activities and its structure, its size and its interconnection with other institutions or with the financial system as a whole and, in particular, any vulnerability or weakness identified in the institution. Each of the envisaged scenarios should be clearly described in the plan. The NBB may also ask to add other specific scenarios, depending on its assessment of the institution's weaknesses.
If the development of this recovery plan is the exclusive responsibility of the institution, this does not, however, constitute, on the part of the institution or the management, an undertaking to take any given initiative. Each crisis is specific and requires a response adapted to the circumstances. The objective of the recovery plan is to increase the number of immediate measures that can be taken in the event of a serious shock and to facilitate their rapid implementation if necessary. Before implementing them, it will obviously be necessary to assess the effectiveness of specific measures in light of the specific shock.
The recovery plan is a strategic document with highly sensitive content. Throughout the process, it remains the property of the institution and is communicated to the NBB only for evaluation. The information contained in the plan is subject to a confidentiality obligation.
Process for drawing up a recovery plan
The development of a recovery plan often constitutes a flexible, iterative process, requiring frequent contact between the institution and the NBB. The objective of these guidelines is to facilitate the development of a plan that thoroughly analyzes the feasibility and potential impact of each of the envisaged recovery options.
Chapters 4 to 6 of this document contain general elements intended to facilitate the development of the recovery plan. They cover the essential points to be addressed in a recovery plan and constitute a non-exhaustive guide to the information that the institution should provide in any event. We wish for your institution to use these elements to develop its own recovery plan and to provide any additional information deemed useful.
During this process, the NBB may request clarifications, formulate new questions or define new requirements if necessary. At the same time, we remain available to the institution to answer any questions or discuss any difficulties it may encounter in the development of its recovery plan.
As this recovery plan is a strategic document, we expect the highest decision-making bodies of the institution to be actively involved. In particular, even if the recovery plan can be developed by senior management, its final version will be presented and formally approved by the management committee as well as by the legal administrative body (in the case of a public limited company, the board of directors). The plan should be accompanied by a letter, signed by the legal administrative body, indicating that the recovery plan is held, understood and fully supported by said legal administrative body.
The recovery plan is furthermore an evolving document, which requires regular revision and updating. In accordance with Article 111 of the Banking Act and with Article 114 of the Act of 20 July 2022 on the status and supervision of investment firms and containing various provisions (hereinafter referred to as the “Investment Firms Act”), an annual update is required, as well as an update following any significant modification of the legal or organizational structure, activities or financial situation of the institution. The supervisory authority may, when circumstances require, require the institution to update the recovery plan more frequently.
The institution is requested to designate a single point of contact for all communication with the NBB regarding recovery plans. This point of contact must be a senior manager who, in addition to centralizing communication with the NBB, coordinates the development of the recovery plan and organizes its recurring updates.
Summary of the recovery plan
The first module of the recovery plan should contain a summary of its main chapters as well as a general and readable presentation of its main conclusions; it should be easily accessible to a non-expert reader. It analyzes in particular the assessment of the overall recovery capacity of the entities covered by the plan, that is to say, the extent to which the recovery options allow the entities concerned to recover in each of the envisaged situations of serious financial and macroeconomic crisis.
In addition to drawing the main conclusions from the recovery plan, the summary should also highlight the main assumptions that were made in the estimation of the impacts of the scenarios and the recovery options.
Governance
4.1. Development, approval and updating of the plan
In this chapter of the recovery plan, the institution should present an overview of the plan development process. It should provide information relating to:
(a) the process, in order to show that the development of the recovery plan is well integrated into the institution's risk management system and governance; where applicable, this table will also include a description of the measures and provisions taken within the group to ensure coordination and consistency of recovery options at the group level and in each of its subsidiaries. (b) the approval of the plan, in order to show that the plan was presented to the highest decision-making bodies of the institution and approved by them; and (c) subsequent updates of the plan, in order to show that it will remain up to date over time.
The following structure should be followed:
(a) establishment of the plan
i. Describe the process followed to establish the plan and list the main departments and persons who participated in the establishment of the plan, as well as their role.
ii. On what existing processes and tools did the institution rely to establish the recovery plan?
iii. What new processes and tools were created after the establishment of the recovery plan?
(b) approval of the plan
i. Describe the hierarchical lines and procedures for the verification and validation of the plan.
ii. When was the plan submitted to the legal administrative body of the institution and approved by said body (for a public limited company, the board of directors)?
iii. Did internal audit, the risk committee (if applicable) or external audit participate in the verification of the plan? If so, state their opinion.
(c) future updates of the plan
i. Describe the process for updating the recovery plan following important changes affecting the institution or its environment.
ii. Indicate the name, function and contact details of the persons responsible for making decisions regarding subsequent updates of the plan.

4.2. Triggering of the recovery plan
16. In this chapter of the recovery plan, the institution should explain the process by which the recovery plan is triggered. It provides information relating to the triggering of the plan, in order to show that it can be implemented early enough, when problems are still manageable. A monitoring framework comprising indicators designed to detect stress at a sufficiently early stage should be included in the recovery plan. Institutions are expected to describe the early warning system that is part of the monitoring framework and the times at which the escalation process of the recovery plan should be activated to determine if the triggering of recovery options is appropriate.

Institutions may also have determined certain measures that could be taken in the early phases of stress but which would no longer be appropriate or feasible in a recovery phase and which should therefore not appear as recovery options in the recovery plan. These business options could nevertheless appear in the monitoring framework, as well as a description of the times at which, before the triggering of the recovery plan, these business options are considered.
The following structure should be followed:
(a) Describe the monitoring framework for potential trigger events and the institution's escalation process for decision-making to analyze and determine which recovery option should, if applicable, be applied (please also describe the procedure for notifying the NBB of a breach of indicator thresholds).
(b) Describe the indicators used and specify their thresholds. These indicators must include the recovery plan indicators appearing in the minimum list (points 21 to 24). Additional indicators must reflect other vulnerabilities, weaknesses or potential threats to the institution's own funds, liquidity, profitability or asset quality.
(c) Describe the consistency of the monitoring framework with the risk management framework, and describe in this regard the early warning signals that are part of the institution's regular internal risk management process, insofar as these benchmarks are useful to inform management that the indicator threshold may have been reached.
(d) Indicate the name, function and contact details of the persons responsible for monitoring potential trigger events and activating the plan, as well as the role, responsibilities and functions of the members of the relevant committees.
(e) Describe how the institution will ensure that the information required for the possible implementation of recovery options can be made available reliably and on time for decision-making under stress conditions.

4.2.1. Framework of indicators and indicator thresholds
19. The choice of indicators should be adapted to the institution's business model and strategy, as well as to its risk profile. It should define the main weaknesses likely to have the greatest impact on the institution's financial situation. The indicators for the recovery plan should be of both qualitative and quantitative nature, and should include prospective indicators.

Institutions should describe the links and consistency between the indicator framework for the recovery plan and the institution's general risk management framework, existing indicators for liquidity and solvency emergency plans, and business continuity plan indicators. The indicator framework for the recovery plan should allow for regular monitoring and be integrated into the institution's governance and escalation and decision-making procedures.
Credit institutions must include at least the following 19 indicators in their recovery plan, divided into six categories.

(a) Capital indicators
i. Common Equity Tier 1 capital ratio
ii. Total capital ratio
iii. Leverage ratio
iv. Minimum Requirement for own funds and Eligible Liabilities (MREL), if applicable

(b) Liquidity indicators
v. Liquidity Coverage Ratio (LCR)
vi. Net Stable Funding Ratio (NSFR)
vii. Eligible unencumbered central bank assets available
viii. Proportion of strictly available assets as described in Communication NBB_2016_34 “Recovery Plans – Encumbered Assets Obligations”
ix. Proportion of broadly available assets as described in Communication NBB_2016_34 mentioned above

(d) Asset quality indicators
xii. Growth rate of gross non-performing loans
xiii. Coverage ratio (Provisions / Total non-performing loans)
xiv. Write-downs of financial assets (% of outstanding amount)

(e) Market indicators
xv. Negative rating assessment or rating downgrade, if applicable
xvi. Credit Default Swap (CDS) spreads, if applicable
xvii. Share price movement, if applicable

(f) Macroeconomic indicators
xviii. GDP variations
xix. Sovereign CDS on bonds issued by central governments

If a credit institution can justify that these indicators are not relevant given the legal structure, risk profile, size and/or complexity of the institution, it must, as far as possible, replace them with another indicator from the same category that is more relevant to it.
Investment firms must include at least the following 14 indicators in their recovery plan, divided into six categories.

(a) Capital indicators
i. Common Equity Tier 1 capital ratio, as defined in Articles 9(1)(a) and 11(1) of the IFR (Investment Firms Regulation) 13
ii. Total capital ratio, as defined in Articles 9(1)(c) and 11(1) of the IFR
iii. Total client non-cash assets / total own funds
iv. Minimum Requirement for own funds and Eligible Liabilities (MREL), if applicable

13 Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on prudential requirements applicable to investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014.

(b) Liquidity indicators
v. Liquidity ratio (liquid assets / liquidity requirements), as defined in Article 43 of the IFR

(c) Profitability indicators
vi. Return on Assets or Return on Equity
vii. Cost-income ratio (operating expenses / operating income)
viii. Significant operating losses

(d) Asset quality indicators
ix. Realized and unrealized losses on the investment and trading portfolio (% of outstanding amount)

(e) Market indicators
x. Negative rating assessment or rating downgrade, if applicable
xi. Credit Default Swap (CDS) spreads, if applicable
xii. Share price movement, if applicable

(f) Macroeconomic indicators
xiii. GDP variations
xiv. Sovereign CDS on bonds issued by central governments

If an investment firm can justify that these indicators are not relevant given its legal structure, risk profile, size and/or complexity, it must, as far as possible, replace them with another indicator from the same category that is more relevant to it.
Further information on each of these categories is provided in points 4.2.1.1 to 4.2.1.6. Institutions may also include other indicators deemed more useful. To this end, the annex contains a non-exhaustive list of examples of additional indicators for recovery plans. The indicators should be numerous enough to alert the institution to a deterioration of the situation in different areas. At the same time, the number of indicators should be adequately targeted and manageable by the institution.
When setting the thresholds for quantitative indicators, the institution should use progressive measures (analogous to road signage of the “green/orange/red” type) to inform its management committee that these indicator thresholds could potentially be reached. To this end, the institution should specify two thresholds for each of the quantitative indicators included in the monitoring framework: (1) an early warning threshold; and (2) a “recovery plan threshold”. Early warning thresholds must be calibrated at adequate levels to signal the emergence of tensions well before the activation of the recovery plan, to increase the chances of successful application of recovery options. A breach of the recovery plan thresholds should trigger the escalation process for decision-making regarding the triggering of the recovery plan, to decide whether recovery options should be activated and, if so, which ones.
The institution should be able to explain to the NBB how the threshold calibrations for recovery plan indicators were defined. For calibration, the institution should take into account the overall recovery capacity of the available options, the complexity of the options, and the time required to implement them. Institutions whose recovery capacity is limited, for example regarding own funds, should apply higher thresholds for capital indicators.
The appropriateness of the threshold calibrations for recovery plan indicators should be subject to regular monitoring, and these thresholds should be updated at least once a year or more frequently when updating is necessary due to a change in the institution's financial or commercial situation.
The NBB, in its capacity as supervisory authority, as well as the resolution authority, may decide to implement temporary relief measures in the event of a systemic crisis with the aim of easing regulatory burdens that could have a negative impact on institutions' ability to continue supporting the real economy. Given the temporary nature and specific objective of these measures, their granting should not result in any automatic modification of the threshold calibrations for recovery plan indicators by institutions.

4.2.1.1. Capital indicators

Capital indicators should enable institutions to identify any significant actual or likely deterioration in the quantity and quality of own funds in the normal course of business, including a growing level of leverage.
When selecting capital indicators, institutions should consider ways to address problems arising from the fact that the ability of these indicators to enable a timely response may be lower than that of other types of indicators, and that certain measures to restore an institution's own funds position may be subject to longer execution periods or increased sensitivity to market conditions and other factors. To address such problems, it is possible in particular to establish forward-looking projections that should take into account major contractual maturities relating to own fund instruments.
The institution should calibrate thresholds for indicators based on regulatory own fund requirements to adequate levels to ensure that there is sufficient margin before there is a breach of the own fund requirements applicable to the institution (both the minimum own fund requirements set out in Article 92 of Regulation (EU) No 575/2013 and the additional specific own fund requirements applied in accordance with Article 149 of the Banking Law or Article 138 of the Investment Firms Law).
In accordance with the objective of the recovery process and the flexibility granted to the institution to act independently in the event of non-compliance with indicator thresholds, the thresholds for regulatory capital indicators should be set at a level higher than those that would allow for NBB intervention.
Generally, credit institutions must calibrate capital indicator thresholds above the overall own funds buffer requirement 14. When a credit institution calibrates its capital indicators within the buffers, it should clearly demonstrate in its recovery plan that its recovery options can be implemented in a situation where the buffers have been fully or partially used.
Thresholds for indicators related to the requirements set out in Articles 267/5/1 and 267/5/2 of the Banking Law (MREL, Minimum Requirement for own funds and Eligible Liabilities) expressed as a percentage of the Total Risk-Exposed Amount (TREA) should be aligned with the calibration of thresholds for indicators based on regulatory own fund requirements and should be set at a level higher than that allowing for resolution authority intervention in accordance with Articles 230/1 to 230/4 of the Banking Law, read in conjunction with Article 95 of the same law.
The threshold should generally be calibrated by the institution above the overall own funds buffer requirement when considered in addition to the final MREL or binding intermediate MREL target levels (if different) expressed as a percentage of TREA. The institution should also take into account any additional elements deemed relevant when determining these requirements, including a subordination requirement, if applicable. If

14 Defined in Article 96 of the Banking Law: the capital conservation buffer as well as, if applicable, the institution-specific countercyclical capital buffer, the capital buffer for systemically important institutions, and the capital buffer for systemic or macroprudential risk, if applicable.

an institution decides to calibrate MREL-related indicators within the buffers, it must clearly demonstrate in its recovery plan that its recovery options can be implemented in a situation where the buffers have been fully or partially used.

Threshold calibration should take into account the maturity structure of eligible liabilities and the institution's ability to roll them over. For groups with a multiple entry point resolution strategy, where prudential and resolution scopes may differ, the institution should calibrate MREL indicators at the consolidated level for each resolution entity/group.
The threshold calibration for MREL should be agreed by the NBB, in its capacity as supervisory authority, in consultation with the resolution authority during their assessment of the recovery plan.

4.2.1.2 Liquidity indicators

Liquidity indicators should inform the institution of the possibility of a deterioration, or actual deterioration, in its ability to meet its current and foreseeable liquidity and funding needs.
The institution's liquidity indicators should refer to its liquidity and funding needs both in the short term and long term, and reflect the institution's dependence on interbank market participants and retail customer deposits, distinguishing between major currencies, if applicable.
Liquidity indicators should be integrated into the strategies, policies, processes, and systems developed by each institution in accordance with Article 94 of the Banking Law or Article 106 of the Investment Firms Law, and into its existing risk management framework.
Liquidity indicators should also cover other potential liquidity and funding needs, such as exposures to intragroup funding and those resulting from off-balance sheet structures.
Thresholds should be calibrated based on the institution's risk profile and take into account the speed with which the liquidity situation can evolve, given the particular circumstances of the institution. Thresholds should be calibrated based on the time required to activate recovery measures, and take into account the overall recovery capacity resulting from these measures.
Liquidity indicator thresholds should be calibrated by the institution at adequate levels to inform the institution of potential and/or actual risks of non-compliance with these minimum requirements (including additional specific liquidity requirements imposed in accordance with Article 151 of the Banking Law or Article 144 of the Investment Firms Law, if applicable).
Therefore, thresholds for indicators based on regulatory liquidity requirements should be calibrated above the 100% minimum requirements.
To calibrate liquidity position thresholds, the institution should take into consideration liquidity measures used for internal monitoring, reflecting its own liquidity assumptions that could, realistically, be derived from sources not taken into account in regulatory requirements. To this end, the institution may take into account rebalancing capacity amounts, other sources of liquidity (e.g., deposits with other institutions), and any other relevant adjustments. When establishing forward-looking indicators, the institution should assess which maturity to take into consideration, based on the institution's risk profile, and then take into account estimated inflows and outflows.

4.2.1.3 Profitability indicators

Profitability indicators should reflect any aspect of the institution relating to revenues, which could lead to a rapid deterioration of its financial position through a decrease in retained earnings (or losses) impacting its own funds.
This category should include recovery plan indicators referring to operational risk losses likely to have a significant impact on the profit and loss account, including, inter alia, conduct-related issues, external and internal frauds, and/or other events.

4.2.1.4 Asset quality indicators

Asset quality indicators should measure and track the evolution of the institution's asset quality. Specifically, they should indicate when the deterioration of asset quality might lead the institution to consider taking a measure provided for in the recovery plan.
Asset quality indicators may include both a stock ratio and a flow ratio of non-performing exposures to reflect their level and dynamics. It is also necessary to track the evolution of write-downs or losses on the investment and trading portfolio.
Asset quality indicators should cover aspects such as off-balance sheet exposures and the impact of non-performing loans on asset quality.

4.2.1.5. Market indicators

The objective of market indicators is to reflect market participants' expectations in the face of a rapid deterioration of the institution's financial situation, which could disrupt access to funding and capital markets. Given this objective, the qualitative and quantitative indicator framework should refer to the following types of indicators:

(a) indicators based on the stock market, reflecting variations in the share price of listed companies or indices measuring the relationship between the book value and market value of shares; (b) debt-based indicators, reflecting the expectations of refinancing providers, such as credit default swaps (CDS) or debt spreads; (c) portfolio-related indicators, reflecting expectations regarding specific asset categories relevant to each institution (e.g., real estate); (d) rating downgrades (long-term and/or short-term), insofar as they reflect rating agency expectations that could lead to rapid changes in market participants' expectations regarding the institution's financial position.

4.2.1.6 Macroeconomic indicators

Macroeconomic indicators aim to reflect signs of deterioration in the economic conditions in which the institution operates or concentrations of exposures or funding.
Macroeconomic indicators should be based on measures influencing the institution's performance in particular geographic regions or business sectors of importance to it.
Macroeconomic indicators should be distributed according to the following typologies:

(a) geographic macroeconomic indicators relating to the various jurisdictions to which the institution is exposed, also taking into account risks arising from potential legal obstacles; (b) sectoral macroeconomic indicators relating to particular economic business sectors of importance to which the institution is exposed (e.g., maritime transport, real estate).

4.2.1.7 Summary table

A summary of all indicators and their thresholds must be included in the “Indicators” table in the attached Excel file. For each indicator, it is necessary to indicate the category to which it belongs, the unit in which it is expressed, the frequency at which it is monitored, and the chosen thresholds. It is also necessary to indicate the indicator value for the four most recent quarters.

4.2.2 Monitoring of indicators

Recovery plan indicators must be defined in such a way that their monitoring is easy. The points at which the recovery plan escalation process must be triggered and where the institution must decide whether or not to activate a recovery option should be clearly defined. Institutions should make appropriate arrangements for the regular monitoring of indicators. Institutions should be able to explain to the NBB how recovery plan indicators were defined and demonstrate that thresholds will be breached early enough to be effective. In this context, the magnitude and speed of threshold breach should be taken into account.
Monitoring of recovery plan indicators should be carried out on a continuous basis to ensure that the institution can take appropriate measures in a timely manner to restore its financial position after a significant deterioration.
The institution's management information systems should ensure easy and frequent monitoring of indicators by the institution and allow for the presentation of indicators to the NBB in a timely manner and upon request.
At the request of the NBB, the institution should provide it with the values of all its recovery plan indicators (met or not) at least on a monthly basis. Under certain circumstances, the NBB may request this information at a higher frequency, particularly in crisis situations or when one or more recovery plan indicators have not been met, given the nature and speed of the crisis (rapid or slow) and the type of indicator (e.g., liquidity indicators).

4.2.3 Actions and notifications in case of breach of an indicator threshold

Breach of indicator thresholds does not automatically trigger the activation of a specific recovery option, but indicates that an escalation procedure should be initiated to decide whether to act. As part of this escalation procedure, the institution should at the latest:

(a) within one working day from the date of the breach, alert the management committee; (b) within one additional working day at the latest, notify the breach of the indicator to the relevant competent authority.

When the threshold of a recovery plan indicator has not been met, the institution's management committee should assess the situation, decide whether recovery measures should be taken, and promptly notify its decision to the competent authority.

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The decision referred to in the previous point should be based on a reasoned analysis of the circumstances surrounding the non-compliance. When this decision involves the establishment taking measures in accordance with the recovery plan, the NBB should receive an action plan comprising a list of credible and feasible potential recovery options to be used in this crisis situation, as well as a timeline to remedy the non-compliance. If no measures have been decided, the explanation provided to the NBB should clearly set out the reasons and, where applicable, demonstrate how the recovery of certain indicators and their non-compliance is possible without resorting to recovery measures.
Any measure adopted or envisaged by the establishment following the non-compliance of an indicator, even if it was not included in the recovery plan, should be considered relevant for communication with the NBB. To this end, recovery options should include measures of an exceptional nature, as well as measures that could be taken as part of normal activity as referred to in Article 8 of Commission Delegated Regulation (EU) 2016/1075 (ranging from emergency measures to more extreme and radical recovery options).
Strategic Analysis
The strategic analysis consists of three parts. The first presents an analysis of the group structure, where applicable, as well as the main activities carried out within the establishment. These activities include both the establishment's core business and any critical function exercised by the establishment. In the second part, the establishment is expected to draw up a list of its main counterparties to which it is exposed. The third part is at the heart of the recovery plan. Establishments indicate the scenarios that would be severe enough to threaten the establishment with insolvency in the absence of recovery measures. Establishments also indicate the available recovery options and subsequently assess their impact in the context of each of the scenarios.
When the information related to this part has already been submitted to the resolution authority for the purpose of drawing up the resolution plan, the NBB accepts that cross-references to the relevant sections of the resolution plan are sufficient for the purposes of this chapter, unless they compromise the completeness and quality of the recovery plan.

5.1 Significant entities of the establishment and critical functions

In this chapter of the recovery plan, the establishment provides contextual information on its organizational structure and, where applicable, that of the group. For groups, this includes a general presentation of the legal structure, activities, and interdependencies that exist between the different entities of the group.
The description of the establishment includes a description of the general strategy regarding activities and risk as well as the establishment's business model and business plan. Where there is a group, the business model and plan apply to all significant entities15. The establishment must indicate in which country the entity is incorporated and in which country(ies) it primarily operates. The institutional description also contains an exhaustive list of core activities and critical functions. Core business lines are the lines of activity and corresponding services that represent a significant source of revenue, profit, or franchise value for the establishment. Critical functions are defined as activities, services, and operations whose interruption could lead to disruptions in services essential for the real economy or to disruptions in financial stability due to the size of the establishment or its market share, its external and internal interconnectedness, its complexity, or its cross-border activities, including through the degradation of public confidence in the financial stability of one or more countries16. The description of core activities and critical functions also addresses the processes and measurement systems used to identify them.
Where the recovery plan concerns a group, it must also contain information on the general organization of financial relationships between the different legal entities of the group, including a description of the treasury function organization and an overview of intragroup financing relationships. Furthermore, the group description also includes a diagram of the group's significant branches or legal entities, as well as their organization. By significant legal entity or branch, we mean any entity that:
(a) contributes significantly to the group's profits or financing, or holds a significant share of its assets or capital; or (b) carries out essential commercial activities; or (c) centrally performs key operational, administrative, or risk functions; or (d) bears significant risks that could, in the worst-case scenarios, threaten the viability of the group; (e) cannot be dismantled or liquidated without posing a major risk to the entire group; or (f) is important for the financial stability of at least one of the countries in which it operates.
The following questions should be answered for each of the group's important branches or legal entities:
(a) For what reasons is the entity considered important?
(b) Is the entity a branch or a subsidiary?
(c) Is the entity subject to direct prudential supervision at the local level and, if so, what is the competent authority?
(d) What percentage of the group's assets does this entity represent?
(e) What is the proportion of the group's equity (regulatory and accounting) held by this entity? These figures must be provided for CET1, T1, and T2.
(f) To what extent does this entity contribute to the group's financing?
(g) What are the entity's main activities and what is their quantitative importance (for example, retail and wholesale deposit collection, retail and corporate lending, insurance, wholesale payments, corporate financial services, debt and capital markets, proprietary trading, asset management, brokerage, monetary services, payment services, third-party services, corporate advisory, research, etc.) (h) Does the entity exercise critical functions or is it part of a main operational unit? (i) What are the main operational, risk, or administrative functions for which the entity depends on services provided either centrally or by another entity within the group (for example, corporate treasury, back office, group internal audit, risk management, human resources management, finance, IT, legal services, etc.)

15 Recommendation EBA/REC/2017/02 https://www.eba.europa.eu/sites/default/documents/files/documents/10180/2101139/2123e950-a81c-4d0e-9c3b-52e8c0f4ca84/Recommendation on coverage of entities in group recovery plan_NL.pdf?retry=1 of 1 November 2017 on the coverage of entities within a group recovery plan provides detailed guidance on the identification of important entities in the group.

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public confidence in the financial stability of one or more countries16. The description of core activities and critical functions also addresses the processes and measurement systems used to identify them.

Where the recovery plan concerns a group, it must also contain information on the general organization of financial relationships between the different legal entities of the group, including a description of the treasury function organization and an overview of intragroup financing relationships. Furthermore, the group description also includes a diagram of the group's significant branches or legal entities, as well as their organization. By significant legal entity or branch, we mean any entity that:
(a) contributes significantly to the group's profits or financing, or holds a significant share of its assets or capital; or (b) carries out essential commercial activities; or (c) centrally performs key operational, administrative, or risk functions; or (d) bears significant risks that could, in the worst-case scenarios, threaten the viability of the group; (e) cannot be dismantled or liquidated without posing a major risk to the entire group; or (f) is important for the financial stability of at least one of the countries in which it operates.
The following questions should be answered for each of the group's important branches or legal entities:
(a) For what reasons is the entity considered important?
(b) Is the entity a branch or a subsidiary?
(c) Is the entity subject to direct prudential supervision at the local level and, if so, what is the competent authority?
(d) What percentage of the group's assets does this entity represent?
(e) What is the proportion of the group's equity (regulatory and accounting) held by this entity? These figures must be provided for CET1, T1, and T2.
(f) To what extent does this entity contribute to the group's financing?
(g) What are the entity's main activities and what is their quantitative importance (for example, retail and wholesale deposit collection, retail and corporate lending, insurance, wholesale payments, corporate financial services, debt and capital markets, proprietary trading, asset management, brokerage, monetary services, payment services, third-party services, corporate advisory, research, etc.) (h) Does the entity exercise critical functions or is it part of a main operational unit? (i) What are the main operational, risk, or administrative functions for which the entity depends on services provided either centrally or by another entity within the group (for example, corporate treasury, back office, group internal audit, risk management, human resources management, finance, IT, legal services, etc.)

16 See also the EBA's technical advice on delegated acts on critical functions and core business lines (EBA Technical advice on the delegated acts on critical functions and core business lines, EBA/Op/2015/05 of 6 March 2015).

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(j) Does this entity provide significant operational, administrative, or risk management services to other entities in the group? What is the importance of this entity's contribution to the group's profits?
(k) What intragroup support does the entity benefit from and what support does it provide to other entities in the group? Take into account intragroup positions resulting from facilities allocated within the group, subordinated and non-subordinated intragroup loans, lent bonds, and sales/repo transactions within the group, as well as intragroup guarantees. Distinguish between aid intended for normal operations (business as usual) and aid intended for crisis periods. (l) What other significant financial or non-financial links are there, where applicable, between the entity and other legal entities of the group, including important legally binding agreements between entities of a group, including, for example, the existence of dominance agreements and profit and loss transfer agreements. (m) How do the entity's management and risk control functions integrate into the broader group risk management framework (management reporting, internal audit, compliance, etc.)?

It is not necessary to provide detailed information on branches or legal entities that are not significant.

5.2 Exposures to main counterparties

If it has not already done so elsewhere, the establishment provides information in this chapter on its main external interconnections, and in particular:
(a) a description of the significant financial products and services that the establishment provides to other financial market participants; (b) a description of the significant main services provided to the establishment by third parties; and (c) a description of significant exposures and liabilities towards main counterparties (including interbank exposures).
For the description of main interbank exposures, the establishment must mention, in particular, its exposure towards Belfius, BNP Paribas (with a special section for BNP Paribas Fortis), ING (with a special section for ING Belgium), and KBC. The establishment must then list its ten main exposures towards financial institutions. For each exposure, indicate the internal limit applicable to the total amount of the exposure, the highest effective exposure recorded during the past year, and a breakdown of this amount according to the following categories (to the extent of their relevance):
(a) overnight deposits;
(b) uncollateralized deposits:
i. from one day to three months;
ii. from three months to one year;
iii. more than one year
(c) uncollateralized and unsecured negotiable securities:
i. less than three months;
ii. between three months and one year;
iii. between one year and three years;
iv. more than three years;

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(d) covered bonds;
(e) asset-backed securities (ABS);
(f) covered bonds;
(g) exposures to 'repo' operations (and any information related to collateral); (h) market value of exposures to over-the-counter derivative instruments; (i) credit and liquidity lines; (j) others.

5.3 Strategic Analysis: Scenarios and Recovery Options

The presentation of scenarios and recovery options is organized into two tables. The "Scenarios" table, in the attached Excel file, describes the different scenarios developed as part of the recovery plan as well as the estimated impact on the establishment's equity and liquidity. The "Recovery Capacity" table, in the attached Excel file, describes for each scenario the different recovery options, assesses their feasibility, and calculates the impact of relevant recovery options on the establishment's financial situation, including its solvency, liquidity, and profitability.

5.3.1 Description of Scenarios

This chapter of the recovery plan specifies the scenarios that, in the establishment's opinion, would deal a severe blow to it. We leave to the establishment's discretion the choice of relevant scenarios of severe macroeconomic and financial stress, so that it can base its scenarios on the most relevant events for it, taking into account factors such as its business model and funding model, its activities and structure, its size, and its interconnectedness with other establishments or with the financial system as a whole and, in particular, its identified vulnerabilities or weaknesses.
We ask each establishment to describe at least three extreme but plausible scenarios that would threaten the establishment's viability if it refrained from taking recovery measures. Each scenario must lead to a situation in which the establishment would no longer comply with its total SREP equity requirement or its total SREP leverage ratio requirement or its minimum regulatory liquidity requirements, as defined in the most recent SREP assessment, unless recovery measures are implemented in a timely manner. If an establishment believes that it is not able to develop a plausibly severe scenario in which it would no longer be able to comply with equity or leverage requirements, it must explain in detail to the NBB why this particular scenario should nevertheless be considered severe enough to present a risk of failure if corrective measures are not implemented in a timely manner. The scenarios must be more severe than those selected as part of other regulatory exercises, such as stress tests or the ICAAP (Internal Capital Adequacy Assessment Process), for example.
Even though we leave the details of the scenarios to your discretion, we ask you to prepare at least one based on idiosyncratic events, one on systemic events, and another where an idiosyncratic shock and a systemic shock occur simultaneously. These scenarios must integrate both slow-acting and fast-acting elements. Finally, at least one scenario must have an impact on both solvency and liquidity.
In developing scenarios based on systemic events, the banking establishment should assess the relevance of the following events:
(a) the default of significant counterparties resulting in consequences for financial stability; (b) a decrease in liquidity available on the interbank credit market;

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(c) increased country risk and a generalized capital outflow from a country where the establishment's activity is significant; (d) unfavorable developments in asset prices on one or more markets; (e) a macroeconomic slowdown.

In developing scenarios based on idiosyncratic events, the establishment is required to assess the relevance of the following events:
(a) the default of significant counterparties
(b) damage to the establishment's reputation;
(c) an acute liquidity outflow;
(d) unfavorable movements in asset prices in which the establishment has significant positions; (e) heavy credit losses; (f) a heavy loss on operational risks.
The events included in idiosyncratic scenarios must be the most relevant events for the establishment.
In the "Scenarios" table, in the attached Excel file, the establishment must, in addition to describing the scenarios, assess the initial impact of the shock on its solvency, liquidity, and profitability. The recovery plan must also describe any other significant impact, such as the impact on its business model, its payment and settlement operations, and its reputation.
Finally, for each of these scenarios, the establishment identifies the critical assumptions when evaluating the impact of the scenarios and explains how the scenario would differ if it modified the assumptions.

5.3.2 Recovery Options

This part of the recovery plan describes the measures to be potentially implemented in the event that one of the scenarios described in part 5.3.1 materializes. These measures constitute the management strategy to avoid default in circumstances where solvency or liquidity are threatened.
As indicated above, this list presents not only initiatives intended to strengthen equity or liquidity, but also more radical measures such as, for example, selling certain activities, certain lines of activity, or certain subsidiaries, or restructuring debt. These options must not mention any assumptions related to an exceptional public aid scheme. They must also be implementable in the very short term and produce a tangible effect in the short term. Recovery options must include measures that are exceptional in nature and not measures to be taken in the normal course of the establishment's activities. The establishment will integrate the following types of measures, to the extent of their relevance:
(a) a range of equity and liquidity actions necessary to preserve the exercise and financing of the establishment's critical functions and core activities and primarily aimed at ensuring the viability of the establishment's critical functions and core activities; (b) provisions and measures whose primary objective is to preserve or reconstruct the establishment's consolidated equity through external recapitalizations and internal measures aimed at improving the establishment's capital position; (c) provisions and measures aimed at ensuring that the establishment has appropriate access to emergency funding sources, including potential liquidity sources; an assessment of available collateral and possibilities for transferring liquidity between the different entities and lines of activity of the establishment, with a view to ensuring that it can continue its activities and honor its obligations at maturity. For groups, this will notably involve external measures and, where applicable, measures aimed at reorganizing the liquidity available within the group; (d) provisions and measures aimed at reducing risk and leverage, or restructuring lines of activity, including, where applicable, an analysis of possible significant divestments involving assets, legal entities, or lines of activity; (e) provisions and measures whose primary objective is to undertake a voluntary restructuring of liabilities without triggering a default event, termination, or similar event; (f) if the establishment deems it necessary, any other action or management strategy whose primary objective is to restore the establishment's financial health.
For each recovery option, the following five elements must be indicated:
(a) Description: Briefly describe each option, and mention the legal entities considered in the option. Also indicate, for groups, the legal entities within the group that would participate in the implementation of the option. This presence may be the consequence of the shareholding structure, an operational link, a financial interdependence, or any other significant relationship. The expected impact of the option on shareholders, customers, counterparties, or the rest of the group must also be indicated. (b) Process: Present the internal decision-making process, including the steps to be followed, the timeline, and the parties involved, up to the implementation of the option. If the timeline is uncertain, the establishment may indicate its estimate in the form of a range (optimistic scenario, base scenario, and pessimistic scenario), indicating the factors that would influence these scenarios. Finally, it indicates the information needs and potential obstacles (particularly of an operational nature) to obtaining information. (c) Risk Assessment: Describe the feasibility of the option and the potential pitfalls of its implementation. The establishment then details the main assumptions regarding the feasibility and impact of the option. In particular, what are the conditions to be met for the option to be feasible? For example, it may be that certain specific markets must function normally or that certain legal or operational conditions must be met. The establishment also specifies the main risks associated with the option, including financial, operational, and reputational risks, as well as any other significant risk that may not fall into one of these three categories. The risk assessment associated with the recovery option takes into account previous experiences of implementing a recovery option or a similar measure. The establishment also provides information on potential rating downgrades and the profile of possible buyers in the event of the sale of activities or entities. Finally, it mentions any potential legal or regulatory obstacle concerning different issues, including at least shareholders' rights, competition law, taxation, and labor law. (d) Operational Contingency Plan: Can business continuity be maintained during the recovery phase when the recovery option is implemented? Describe all measures necessary to maintain uninterrupted access to relevant financial market infrastructures, as well as all arrangements and measures necessary to maintain the continuity of the establishment's operational processes, including network and information systems established and managed in accordance with Regulation (EU) 2022/255417. When the option involves the separation of an entity from the group, it is also necessary to describe how the separated entity can continue to function without the support of the group. (d) Negative Impact: Describe the expected impact of implementing the option on the establishment's ability to continue to fulfill its
critical functions. The implementation of the option

17 Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on Digital Operational Resilience for the Financial Sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011.

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could it have implications at the system level?

5.3.3 Impact Assessment

This chapter must present, for each of the scenarios described above, an estimate of the impact of the recovery options proposed above, insofar as they are appropriate and feasible in that scenario. When relevant, the assessment clearly identifies the different entities of the establishment that may be affected by the option or involved in its implementation. For each measure, its impact on equity and solvency over an 18-month period and on liquidity and funding over a 6-month period must be evaluated, calculating, in both cases, from the moment any indicator of the recovery plan is breached, such that the establishment would implement one or more recovery options. The impact on the establishment's profitability must also be specified.
The limiting factors associated with the simultaneous or sequential implementation of recovery options must be taken into account, such as mutual exclusivity, interdependencies, operational capacity to implement different measures simultaneously, or the combined impact on the establishment's business model or reputation. The assessment also mentions any other significant impact for the establishment or the financial system. It also presents an estimate of the feasibility of the recovery options, as well as factors likely to facilitate or complicate its implementation in that scenario.
The quantitative elements of this assessment must also appear in the "Recovery Capacity" table, in the attached Excel file, which, for each scenario, must also include the combined impact of the simultaneous implementation of all feasible options ("Overall Recovery Capacity [ORC] specific to the scenario"). The establishment cannot include in the calculation of its scenario-specific recovery capacity recovery options whose probability of success is limited.
The establishment is also requested to identify and analyze all critical assumptions underlying the impact assessment performed for each of the recovery options. The establishment indicates to what extent the scenario's impact would change if the critical assumptions were modified. It also describes in detail the assumptions, particularly regarding valuation, including those regarding the marketability of assets and the behavior of other establishments. The impact assessment will include, where relevant for the assessment of the option, a detailed description of the processes determining the value and marketability of the establishment's core activities, business, and assets.
Communication and Information Plan
The establishment presents a detailed communication and information plan covering the following topics:
(a) internal communication, particularly directed at staff, the board of directors, or other employee representatives in local and foreign entities. The establishment should indicate in this regard at what stage and in what manner all concerned parties will be informed.
(b) external communication, particularly intended for shareholders, resolution or supervisory authorities, counterparties, financial markets, financial market infrastructures, investors, depositors, and the general public, as relevant. The establishment should indicate in this regard at what stage and in what manner all concerned parties will be informed. Furthermore, the plan will explain in particular how a potentially negative reaction from the markets is planned to be managed.
The recovery plan includes an analysis of how the communication and information plan will be implemented, for each recovery option, as well as an assessment of the potential impact on the business and financial stability in general.

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Preparatory Measures
In this chapter of its recovery plan, the establishment presents a detailed analysis of the following points:
(a) preparatory provisions intended to facilitate the sale of assets or lines of business within timeframes favorable to the restoration of financial soundness; (b) preparatory measures that the establishment has taken or intends to take in order to facilitate the implementation of the recovery plan or improve its effectiveness, including measures necessary to recapitalize the establishment in a timely manner and to overcome obstacles to the effective implementation of recovery options.

A copy of this communication is sent to the commissioner(s), approved auditor(s) of your establishment.

Please accept, Madam, Sir, our distinguished salutations.

Pierre Wunsch
Governor

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Annex
Indicative list of additional indicators for recovery plans

Category 1: Equity indicators a) Undistributed profits and reserves / Total equity b) Negative information regarding the financial position of significant counterparties

Category 2: Liquidity indicators a) Concentration of liquidity and funding sources b) Total funding cost (retail funding and interbank refinancing) c) Average duration of interbank refinancing d) Asymmetry of contractual maturities e) Interbank refinancing cost

Category 3: Profitability indicators a) Cost-income ratio (Operating costs / Operating income) b) Net interest margin

Category 4: Asset quality indicators a) Non-performing net loans / Equity b) Non-performing gross loans / Total loans c) Growth rate of financial asset impairments d) Non-performing loans by significant geographic or sectoral concentration e) Exposures subject to forbearance practices / Total exposures

Category 5: Market indicators a) Market capitalization / Equity ratio b) Threat to the establishment's reputation or significant damage to reputation

Category 6: Macroeconomic indicators a) Negative rating assessment or downgrade of bonds issued by central governments b) Unemployment rate