The European Council Presidency and the European Parliament reached a provisional agreement on a new directive harmonizing rules for credit servicers and credit purchasers of non-performing loans (NPLs) issued by credit institutions. The directive standardizes the rules for credit servicers and credit purchasers across EU and facilitates NPL sales, even across national borders. The new rules are aimed to support the development of the secondary market for NPLs in EU, to allow banks to clean their balance sheets of bad loans, while ensuring that the sale does not affect the rights of borrowers. A designated authority in the home member state will authorize and supervise credit servicers, in close cooperation with the authorities of other member states.
The provisional agreement was reached on the following key issues discussed during the negotiations:
- Authorizing credit servicing activities, to ensure borrowers are treated fairly and diligently
- Forbearance measures, to consider the rights and interests of consumers before starting enforcement proceedings
A bank loan is generally considered non-performing when more than 90 days pass without the borrower paying the agreed installments or interests, or when it becomes unlikely that the borrower will reimburse it. Efficient management of NPLs is particularly important in the aftermath of the COVID-19 crisis to reduce risks on the balance sheets of banks and to enable banks to focus on lending to businesses and citizens, thus supporting economic recovery in EU. The Parliament and the Council are expected to adopt the directive after legal-linguistic revision. After it is signed and published in the Official Journal of the European Union, the text should be transposed into national law within 24 months of the date of entry into force.
Keywords: Europe, EU, Banking, NPLs, Credit Risk, Secondary Market for NPLs, European Parliament, European Council, EC
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