Guidelines on recovery plans

NBB_2024_06 – 26 March 2024 Communication – Page 1/21 boulevard de Berlaimont 14 – 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 Guidelines on recovery plans 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 the SSM Regulation1 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 regime2. These institutions should prepare their recovery plan in accordance with the Guidelines on simplified obligations regarding recovery plans3.
• 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 should 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 should be established 4. These
  1 Regulation (EU) No 1024/2013 of the Council of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions.
  2 For institutions subject to supervision by the NBB, the latter determines which institutions benefit from simplified obligations based on the criterion set out in Article 113, § 4, of the Banking Act and specified in the EBA guidelines of 7 July 2015 on the application of simplified obligations under Article 4, paragraph 5, of Directive 2014/59/EU (EBA/GL/2015/16) or on the basis of Article 116, § 1, of the Act of 20 July 2022 on the status and supervision of investment firms and containing various provisions. 3 NBB Communication NBB_2024_07 of 26 March 2024 "Guidelines on simplified obligations regarding recovery plans" 4 Article 8, paragraph 2, of Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC and the European Parliament and Council Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU and the Regulations of the European Parliament and of the Council (EU) No 1093/2010 and (EU) No 648/2012. n1 Banque Nationale Bank VAN BELGIE Eurosystem

Communication - Page. 2/21 NBB_2024_06 - 26 March 2024 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 as a user-friendly tool for institutions to prepare recovery plans in compliance with the requirements of the Bank Recovery and Resolution Directive (BRRD), the EBA regulatory standards on the content of recovery plans5, the EBA guidelines on the range of scenarios to be used in recovery plans6, the EBA recommendation on the coverage of entities within a group recovery plan7, the EBA guidelines on indicators for recovery plans8 and the new EBA guidelines on overall recovery capacity in the context of recovery planning9. This communication also refers to the EBA technical advice on delegated acts concerning critical functions and core business lines 10. 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

1. General overview and motivation
2. Process for drawing up a recovery plan
3. Summary of the recovery plan
4. Governance
5. Strategic analysis
6. Communication and information plan
7. Preparatory measures
   5 Cf. the draft regulatory technical standards entitled: EBA/RTS/2014/11 of 18 July 2014 on the content of recovery plans under Article 5(10) of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms.
   6 EBA Guidelines/GL/2014/06 of 18 July 2014 on the range of scenarios to be applied in recovery plans, 7 EBA Recommendation EBA/REC/2017/02 of 1 November 2017 on the coverage of entities within a group recovery plan.
   8 EBA Guidelines EBA/GL/2021/11 of 9 November 2021 on indicators for recovery plans".
   9 EBA Guidelines EBA/GL/2023/06 of 19 July 203 on overall recovery capacity in the context of recovery planning.
   10 EBA/Op/2015/05 of 6 March 2015, Technical advice on the delegated acts on critical functions and core business lines.

NBB_2024_06 – 26 March 2024 Communication – Page 3/21 Madam, Sir,
1. General overview and motivation
1. A recovery plan is a management strategy aimed at avoiding the default of an institution or a group placed in a serious crisis situation11. 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 senior management 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. These options should include initiatives aimed at strengthening capital or liquidity, as well as 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.
2. The effectiveness of a measure described in a recovery plan obviously depends on the scenario to which this 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 both an idiosyncratic component and a systemic component simultaneously. 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 and in a timely manner.
3. 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 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.
4. 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 management, a commitment 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 evaluate the effectiveness of specific measures in light of the specific shock.
5. 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.
2. Process for drawing up a recovery plan
6. The development of a recovery plan often constitutes a flexible, iterative process, requiring frequent contacts 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.
7. 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.
8. 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.
9. As this recovery plan is a strategic document, we expect active involvement from the highest decision-making bodies of the institution. 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.
10. 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.
11. 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 recurrent updating.
3. Summary of the recovery plan
12. 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-initiated reader. It analyzes in particular the assessment of the overall recovery capacity of the entities covered by the plan, i.e., to what extent the

NBB_2024_06 – 26 March 2024 Communication – Page 5/21 recovery options allow the entities concerned to recover in each of the envisaged situations of serious financial and macroeconomic crisis.
13. In addition to drawing the main conclusions from the recovery plan, the summary should also highlight the main assumptions that were made in estimating the impacts of the scenarios and recovery options.
4. Governance
4.1. Development, approval and updating of the plan
14. 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 at each of its subsidiaries12. (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.
15. 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.
12 For more information regarding group recovery plans, see the EBA Recommendation EBA/REC/2017/02 of 1 November 2017 on the coverage of entities within a group recovery plan.

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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 sufficiently early, 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 moments when the escalation process of the recovery plan should be activated to determine if the triggering of recovery options is appropriate.
17. 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 moments at which, before the triggering of the recovery plan, these business options are considered.
18. 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 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 capital, liquidity, profitability or asset quality of the institution. (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 potential implementation of recovery options can be made available reliably and in time for decision-making under stress conditions.
4.2.1. Indicator framework 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.
20. Institutions should describe the links and consistency between the indicator framework for the recovery plan and the institution's general risk management framework, the existing indicators of the liquidity and solvency contingency plan, as well as the indicators of the business continuity plan. 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.

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21. 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. Available unencumbered central bank eligible assets
viii. Proportion of strictly available assets as described in Communication NBB_2016_34 "Recovery Plans – Obligations regarding encumbered assets"
ix. Proportion of broadly available assets as described in Communication NBB_2016_34 mentioned above
(c) Profitability indicators
x. Return on assets or Return on equity
xi. Significant operating losses
(d) Asset quality indicators
xii. Growth rate of gross non-performing loans
xiii. Coverage ratio (Provisions / Total non-performing loans)
xiv. Impairment of financial assets (as a % of the balance)
(e) Market indicators
xv. Negative rating assessment or downgrade, if applicable
xvi. Credit default swap spreads, if applicable
xvii. Share price variation, if applicable
(f) Macroeconomic indicators
xviii. GDP variations
xix. Credit default swap contracts on bonds issued by central governments
22. 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.
23. The