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    ECB Reviews Non-Performing Loan Regimes in Euro Area Countries

    June 30, 2017

    ECB published its second stocktake of national supervisory practices and legal frameworks related to non-performing loans (NPLs) in the euro area. The report summarizes the key findings of an ECB stocktaking exercise, which was conducted to identify the range of practices related to NPL workout in all Single Supervisory Mechanism countries. The report provides a comprehensive view of the practices for treating NPLs in the euro area as at December 31, 2016 and seeks to identify key supervisory practices and guidance, in addition to current regulation and obstacles (legal or otherwise) related to the workout of NPLs.

    The stocktake reveals that progress has been made within the Single Supervisory Mechanism to address the NPL issue from a supervisory perspective and the overall value of the NPL stock has decreased since the publication of the first stocktake. One of the key lessons from this analysis is that stakeholders should make preparations in quieter times so that frameworks for managing NPLs are robust from the outset. It is necessary to be proactive and prepared before NPL levels become elevated. Current legal backlogs related to insolvency can be traced back to the failure to establish out-of-court settlement mechanisms before NPL levels became elevated. Consequently, banks in some countries cannot resolve NPL issues efficiently and their NPLs have a negative impact on their performance. Some changes have been introduced to legal frameworks since the publication of the first stocktake; however, these changes have been largely incremental and it is too early to assess their effectiveness. 

     

    The first stocktake was published in September 2016 and it covered the national supervisory practices and legal frameworks related to NPLs in Cyprus, Greece, Ireland, Italy, Portugal, Slovenia, Spain, and Germany. This second stocktake covers the remaining 11 countries participating in European banking supervision. These stocktakes are the result of joint efforts by the ECB and the national competent authorities, which collectively supervise more than 4,000 banks in the euro area.

     

    Related Links

    Second Stocktake Report (PDF) 

    First Stocktake (PDF)

    Keywords: ECB, NPL, Europe, Banking, Stocktake Report, SSM

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