Asset Quality Review and Prudential Provisioning: A Proposal from a Access to Credit Point of View

As part of the Asset Quality Review conducted by the ecb since 2014 with reference tothe main European banks, indicators typically used in corporate finance have been introduced.The element that unites the new guidelines appears to be the progressive abandonment of abackward-looking logic to embrace a fully forward-looking perspective based on the appreciationof cash flows. In the aqr framework, ebitda and dscr have assumed particular importance.As is known, the «aqr manual», with specific reference to the calculation of prudentialprovisioning, provides that banks, in a going concern perspective, estimate the recoverableamount of loans by appropriately discounting the cash flows. The aim of the work is to analysethe prudential provisioning model identified in the aqr framework in order to propose ageneralization starting from the expected dscr of the borrower. The paper highlights how an«economic» approach to provisioning tends to reward companies capable of generating adequateprospective cash flows, in this way mitigating the potential allocative distortions implicitin the incentive structure underlying the aqr approach.