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March 01, 2018

Danièle Nouy of ECB spoke at the Delphi Economic Forum on the opportunities and challenges for European banks. She highlighted that non-performing loans (NPLs) represent one of the key challenges for European banks and explained the goals of the draft addendum to the guidance on NPLs, which ECB published in October 2017.

She said: "The addendum sets out how we expect banks to provision new NPLs. And here, two things are important but sometimes misunderstood. First, the addendum is about new non-performing exposures. Second, banks will not have to fully provision these loans right away. Unsecured loans that become non-performing will need to be fully provisioned after two years; secured loans after seven years." The addendum is intended to prevent a recurrence of the NPL problem. ECB has assessed the comments received on the consultation and will adapt the addendum accordingly. The legal concerns that were raised will be taken into account, the cut-off date will be shifted, and the final addendum will be published later this month, added Ms. Nuoy.

She mentioned that NPLs are not just an issue for banks and supervisors. The legal and judicial frameworks should also be enhanced to facilitate a more rapid resolution of NPLs. This includes action in areas such as insolvency regimes, debt enforcement, and out-of-court restructuring. In these areas, Greece has passed new laws, which is encouraging. However, passing laws is just the first step, as these laws also need to be implemented and applied. NPLs are the weakest link in the Greek banking system and it is crucial that Greek banks clean up their balance sheets. The upcoming stress test for banks will also play a positive role in this. EBA will conduct a stress test on 37 banks in the euro area, including the four significant Greek banksFor Greek banks, the stress test will be conducted earlier than for the other banks. While the results of the EBA sample will be published in November, the results for the Greek banks will be published in May, before the end of the stability support program. She concluded that, although the banking sector faces a number of challenges, conditions for dealing with these challenges "are very promising."

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Keywords: Europe, Banking, NPL, Addendum, Stress Testing, ECB

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