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March 14, 2018

EC proposed a comprehensive package of measures to tackle nonperforming loans (NPLs) in Europe. The proposal for a directive on credit servicers, credit purchasers, and the recovery of collateral is complemented by a proposal for a regulation amending the Capital Requirements Regulation or CRR (EU Regulation No 575/2013). Also published were the second progress report on reduction of NPLs in Europe and a technical blueprint (non-binding guidance) on setting up national asset management companies in line with the EU legal framework and State aid rules.

The key elements of the proposals include ensuring sufficient loss coverage by banks for future NPLs, enabling accelerated out-of-court enforcement of loans secured by collateral, and further developing the secondary markets for NPLs. The minimum coverage levels for nonperforming exposures (NPEs) will act as a statutory prudential backstop for newly originated loans that become non-performing. EC further proposes to introduce a common definition of NPEs, in accordance with the one already used for supervisory reporting purposes. Valdis Dombrovskis, the EC Vice President for Financial Stability, Financial Services, and Capital Markets Union, said that the "...proposals build on the significant risk reduction already achieved in recent years, and must be an integral part of completing the Banking Union through risk reduction and risk sharing.

Additionally, the second progress report on reduction of NPLs in Europe shows a continuing decline of NPL stocks. The latest data indicates that the NPL ratio dropped to 4.4% in the third quarter of 2017, bringing it down by roughly 1 percentage point year-on-year and at its lowest level since the fourth quarter of 2014. However, the total volume of NPLs in the EU is still well above the pre-crisis levels (EUR 910 billion). Uneven NPL ratios across the EU—ranging from 0.7% to 46.7%—and slow progress in some member states remain a source of concern.

 

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Keywords: Europe, EU, Banking, NPLs, CRR, Asset Management Companies, Banking Union, EC

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