The European Commission has welcomed the headway made in tackling non-performing loans (NPLs) in the EU as part of ongoing work at the national and EU level to reduce remaining risks in parts of the European banking sector.
In its First Progress Report since the Finance Ministers agreed an Action Plan on reducing non-performing loans (NPLs), the Commission highlights the further improvement in NPL ratios and forthcoming measures to bring NPL stocks down further.
Reducing NPLs is important for the smooth functioning of the Banking Union and the Capital Markets Union, and for a stable and integrated financial system in the EU. Addressing high stocks of NPLs and preventing their possible future accumulation is essential to strengthen and cement economic growth in Europe. Households and companies depend on a strong and crisis-proof financial sector to get financing. While individual banks and Member States are in the driving seat when it comes to tackling their stocks of NPLs, there is a clear EU dimension given the potential spill-over effects to the EU economy as a whole.
Valdis Dombrovskis, Vice-President for Financial Stability, Financial Services and Capital Markets Union said: “Getting the level of NPLs down is essential to reducing risks in the banking sector and completing the Banking Union. Concerted efforts by banks, supervisors, Member States and Commission have already borne fruits. But we need to forge ahead to further bring down NPL levels. We want banks in all EU countries to regain their full capacity to lend to companies and households while preventing build-up of new bad loans.”
Key findings
Today’s First Progress Report, which takes the form of a Communication and an accompanying Staff Working Document, highlights recent developments of NPLs both in the EU as a whole and within individual Member States. It shows that the positive trend of falling NPL ratios and growing coverage ratios has solidified and continued into the second half of 2017.
NPL ratios have been falling in nearly all Member States, although the situation differs significantly across Member States. The overall NPL ratio in the EU declined to 4.6% (Q2 2017), down by roughly one percentage point year-on-year, and by a third since Q4 2014.
The data demonstrates that risk reduction is taking hold in the European banking system, and will support progress towards completing Banking Union, which should occur by risk reduction and risk sharing in parallel.
The report also shows that the EU is on track with implementing the Council’s Action Plan.
In spring, the Commission will propose a comprehensive package of measures to reduce the level of existing NPLs and to prevent the build-up of NPLs in the future. The package will focus on four areas: (i) supervisory actions, (ii) reform of restructuring, insolvency and debt recovery frameworks, (iii) development of secondary markets for distressed assets, and (iv) fostering restructuring of the banking system. Action in these areas should be at national level and at Union level where appropriate.
The Commission also calls on Member States and the European Parliament to rapidly agree on the Commission’s proposal on business insolvency. Proposed in November 2016, this measure would help companies in financial difficulty to restructure early on so as to prevent bankruptcy, leading to more efficient insolvency procedures in the EU.
Source: European Commission
Edition: Prime Yield
