Commission’s measures to address risks related to NPLs
14 March 2018
The European Commission tabled measures to accelerate the reduction of non-performing loans in the banking sector. They aim to put the EU banking sector on a sounder footing. The package complements work on the Capital Markets Union and is – according to the Commission – an essential step towards the completion of the Banking Union.
The package contains a mix of complementary policy actions that 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.
In particular, the proposals include the following key elements:
1. Ensuring sufficient loss coverage by banks for future NPLs
- A Regulation amending the Capital Requirements Regulation (CRR) introduces common minimum coverage levels for newly originated loans that become non-performing. In case a bank does not meet the applicable minimum level, deductions from banks’ own funds would apply.
- The measure addresses the risk of not having enough funds to cover losses on future NPLs and prevents their accumulation.
2. Enabling accelerated out-of-court enforcement of loans secured by collateral
- Under the proposals, banks and borrowers can agree in advance on an accelerated mechanism to recover the value from loans guaranteed with collateral.
- If a borrower defaults, the bank or other secured creditor is able to recover the collateral that underpins a loan in an expedited way, without going to court.
- Out-of-court collateral enforcement is strictly limited to loans granted to businesses and subject to safeguards. Consumer loans are excluded.
3. Further developing secondary markets for NPLs
- The proposal will foster the development of secondary markets for NPLs by harmonising requirements and creating a single market for credit servicing and the transfer of bank loans to third parties across the EU.
- The proposed Directive defines the activities of credit servicers, sets common standards for authorisation and supervision and imposes conduct rules across the EU. It means that operators respecting those rules can be active throughout the EU without separate national authorisation requirements.
- Purchasers of bank loans are required to notify authorities when acquiring a loan. Third-country purchasers of consumer loans are required to use authorised EU credit servicers. Consumer protection is ensured by legal safeguards and transparency rules so that the transfer of a loan does not affect the legitimate rights and interest of the borrower.
4. A technical blueprint for how to set up a national Asset Management Companies (AMCs)
- The non-binding blueprint guides Member States on how they can set up national AMCs, should they find it useful, in full compliance with EU banking and State aid rules.
- While considering AMCs with a State aid element as an exceptional solution, the blueprint clarifies the permissible design of AMCs receiving public support. The blueprint also sets out alternative impaired asset measures.
- The blueprint suggests a number of common principles on the set-up, governance and operations of AMCs. The blueprint draws on experience and best practices from AMCs already set up in Member States.
see also related information of the European Central Bank 15.3.2018:
ECB sets out its supervisory expectations for new NPLs
a Bruegel publication 18.1.2018:
Risk reduction through Europe’s distressed debt market
and an article on Voxeu by Paolo Angelini, Bank of Italy, 12.4.2018:
Non-performing loans and the credit allocation mechanism