EC Discusses Strategy to Tackle Non-Performing Loans in EU
EC held a roundtable meeting with the industry experts and public authorities and institutions at national and European levels, to prepare a coordinated European response to tackling non-performing loans (NPLs) that are expected to increase over the coming months, as a result of the COVID-19 pandemic. Topics for discussion at the roundtable included a possible approach to improve the usability of national Asset Management Companies (AMC), the state of play of EC proposal for a Directive on credit servicers and credit purchasers, initiatives to improve data standardization and data infrastructure on secondary markets for NPLs, and a presentation on the recent proposal of EC on the securitization of non-performing exposures. EC also plans to organize an NPL expert group meeting with public sector stakeholders on October 05, 2020.
At the roundtable meeting, Executive Vice-President of EC, Valdis Dombrovskis highlighted that, over the next six months, banks expect an increased net tightening impact for loans to businesses, housing loans, and consumer credit. Depending on the severity of different scenarios, asset quality of banks—and in turn, their lending capacity—could potentially suffer a strong blow. He also mentioned that, in response to the pandemic, it is vital to avoid national fragmentation and ensure unfettered access to lending in all EU countries. He emphasized finalization of the remaining elements of the 2017 Council Action Plan that have not yet been put into effect. The new strategy would take some of these elements and take them further. He further added that the focus of the strategy should not be primarily on reducing risk but on making sure that banks are in a position to support the recovery. Overall, Mr. Dombrovskis suggested that the strategy should focus on two areas:
- To develop secondary markets for distressed assets, regarding which he requested the European Parliament to reach agreement on the proposal for a directive on credit services and credit purchasers
- To further reform the insolvency and debt recovery frameworks, with focus on building on the results of the ongoing benchmarking exercise to discuss targeted national measures
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Keywords: Europe, EU, Banking, NPLs, COVID-19, Credit Risk, Securitization, Secondary Market for NPLs, EC
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