European Commission Publishes Fourth Progress Report on Reduction of Non-Performing Loans in Europe

The European Commission has published its fourth progress report on the reduction of non-performing loans in Europe. The report describes the impact of the EU's measures to tackle NPLs, which stem from the European Council's "Action Plan to Tackle NPLs in Europe". The Action Plan was designed to reduce risk in the European banking sector. As part of this project, the European Commission launched a package of legislative and non-legislative measures designed to address the build-up of non-performing loans seen in the years following the financial crisis.
 
The report confirms that NPL ratios continued to decline in the third quarter of 2018 and average EU NPL levels are now approaching pre-crisis levels. However, NPLs continue to pose a risk to financial stability in some Member States. The report sets out ongoing developments under the Commission's NPL Action Plan to further reduce NPL levels. These include:
 

• The adoption of amendments to the Capital Requirements Regulation, to ensure that banks have sufficient loan loss coverage to cover newly originated loans which may become NPLs in the future;
• The publication of a draft Directive on Credit Services, Credit Purchases and the Recovery of Collateral, which would facilitate how banks deal with NPLs through either sale of the loans or enforcement of underlying collateral; the draft Directive is awaiting agreement at the European level;
• An ongoing exercise, benchmarking national loan enforcement regimes to obtain a reliable picture of the delays and value recovery rates that banks encounter in defaulting loans; Member States have been requested to provide relevant data to assist the exercise;
• The production of guidance for Member States on best practices to establish national Asset Management Companies; and
• The development of NPL transaction platforms, to take the form of electronic marketplaces for exchanging information about and trading NPLs; the Commission held a roundtable with stakeholders on the subject in January 2019 and will organize a second roundtable as a next step.

The fourth progress report concludes with a call to stakeholders at the national and EU level to finalize ongoing actions under the Action Plan, without delay. In particular, the European Parliament and Council of the European Union are requested to agree on the outstanding legislative measures proposed in March 2018 to tackle NPLs.
 
View the Commission's report.
 
View details of the Commission's measures to combat non-performing loans.
 
View details of the amendments to CRR on the statutory prudential backstop.

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