The European Commission is proposing an ambitious and comprehensive package of measures to tackle non-performing loans (NPLs) in Europe, capitalizing on the significant progress already made in reducing risks in the banking sector. With these far-reaching measures, the Commission is delivering on the European Council’s action plan to address the high stock of NPLs and prevent their possible future accumulation.
It builds on ongoing efforts by member states, supervisors, credit institutions and the EU: this has led to stocks of NPLs declining in recent years across banks and EU countries. The package complements work on the Capital Markets Union and is an essential step towards the completion of the Banking Union, one of the immediate priorities agreed by EU leaders to strengthen Europe’s Economic and Monetary Union.
In addition, the Commission is also presenting its second progress report on the reduction of NPLs in Europe, showing that the decline of NPL stocks is continuing. Despite good progress, however, more needs to be done to address remaining stocks of NPLs and their possible build-up in the future.
Policy actions target four key areas:
- Ensuring that banks set aside funds to cover the risks associated with loans issued in the future that may become non-performing.
- Encouraging the development of secondary markets where banks can sell their NPLs to credit servicers and investors.
- Facilitating debt recovery, as a complement to the insolvency and business restructuring proposal put forward in November 2016.
- Assisting member states that so wish in the restructuring of banks, by providing non-binding guidance – a blueprint – for establishing Asset Management Companies (AMCs) or other measures dealing with NPLs.