General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 11, 2017

ESRB published a report on resolving non-performing loans (NPLs). The report summarizes the NPL situation in the EU, followed by practical guidance on the process leading to NPL resolution, including a synopsis of the available options. Specific areas of interest include incentives for, and potential impediments to, the resolution of NPLs, policy experiences on asset management companies, and the conditions of secondary markets for distressed assets in the EU.

The report noted that the stock of NPLs in the EU banking sectors amounted to 5.1% of total loans at the end of 2016. The elevated NPL stock creates macro-prudential and financial stability issues. The report contains practical guidance for policymakers on the three steps that must be taken to design the overall response to the NPL issue. In the first step, a clear upfront diagnosis of the size and scope of the NPL problem should be made, followed by an operational separation of NPLs from other performing assets of the bank. In the second step, the NPLs of the concerned banks should be subject to valuation and triage, to identify the viable exposures—to be restructured—and the non-viable exposures, which would be liquidated. Additionally, an assessment of the viability of each individual bank following the resolution of their NPLs needs to be made. In the third and final step, the relevant NPLs should be removed from the banking system, whereby banks may need to be restructured, merged, or sold to facilitate their return to sustainable profitability.

 

The report outlines the practical aspects of NPL resolution, highlighting that a comprehensive policy response should be developed further to address the key aspects of this issue. Finally, the report offers specific policy proposals for a range of measures. In the medium term, the work should concentrate on structural issues to improve recoveries from NPLs. However, in the short term, the report recommends that micro-prudential authorities should strengthen their efforts to improve NPL management of banks by:

Enforcing compliance with the EU NPL definition and prudent measurement of NPLs

Requesting regular updates of NPL reduction strategies and setting targets for NPL reduction

Extending the adoption of good practices to all banks

 

Related Link: Report (PDF)

Keywords: Europe, ESRB, EU, NPL, Banking, Report

Related Insights
News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News
News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News
News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News
News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News
News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
News

SRB Publishes Framework for Performing Valuations in Resolution

SRB published its framework for performing valuations in resolution. The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 14, 2019 WebPage Regulatory News
News

FED Issues Correction in Historical Dataset in its 2019 Stress Tests

FED identified an error in the historical dataset used in its 2019 stress tests and issued a correction.

February 13, 2019 WebPage Regulatory News
News

OCC Consults on Company-Run Stress Test Requirements for Banks

OCC proposed amendments to its company-run stress testing requirements for national banks and Federal savings associations, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

February 12, 2019 WebPage Regulatory News
News

CFTC Extends Comment Periods for Trade Execution Requirement Proposals

CFTC announced that it is extending comment period for the proposed amendments related to the regulations on swap execution facilities (SEF) and trade execution requirement.

February 12, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2610