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Non-performing Loans
Non-performing Loans (NPLs)EU and national authorities are collaborating to tackle the risks associated with high levels of non-performing loans (NPLs) in Europe.
Non-performing loans are bank loans that are overdue or unlikely to be repaid by the borrower. During the financial crisis and subsequent recessions, many banks accumulated high levels of NPLs, especially in certain EU countries. Although the average NPL ratio in the EU has decreased by more than a third since 2014, the total volume remains high, hampering banks' profitability and their ability to lend, particularly to SMEs.
Non-performing loans are bank loans that are overdue or unlikely to be repaid by the borrower. During the financial crisis and subsequent recessions, many banks accumulated high levels of NPLs, especially in certain EU countries. Although the average NPL ratio in the EU has decreased by more than a third since 2014, the total volume remains high, hampering banks' profitability and their ability to lend, particularly to SMEs.
EU Initiatives
Addressing NPLs is primarily the responsibility of banks and national authorities. However, due to the interconnected nature of EU economies, there is a significant EU interest in reducing NPL ratios. In July 2017, the ECOFIN Council agreed on an action plan to tackle NPLs, involving various institutions, including the European Commission.
Commission Measures
In March 2018, the European Commission presented a comprehensive package of measures to address high NPL ratios and prevent their future build-up:
- Regulation Proposal: Amending the capital requirement regulation to introduce minimum coverage levels for newly originated NPLs.
- Directive Proposal: On credit servicers, credit purchasers, and collateral recovery to provide banks with efficient out-of-court value recovery mechanisms and to develop secondary markets for NPLs.
- Blueprint for National AMCs: Providing guidance to national authorities on setting up asset management companies to manage NPLs.
NPL Action Plan
To support the EU's economic recovery post-COVID-19, the Commission presented an action plan on December 15, 2020, aimed at equipping Member States and the financial sector with tools to address any rise in NPLs early on.
Policy Making Timeline
- 23 June 2023: Extension for two years of the NPL Advisory Panel to finalise the ongoing work.
- 18 October 2022: Communication on the guidelines for a best-execution process for sales of non-performing loans on secondary markets
- 23 June 2021: Establishment of the NPL Advisory Panel.
- 16 June 2021: Consultation on Improving transparency and efficiency in secondary markets for non-performing loans (NPLs)
End date: 8 September 2021 - 16 December 2020: Action plan on Tackling non-performing loans (NPLs) in the aftermath of the COVID-19 pandemic
- 12 June 2019: Fourth progress report on the reduction of non-performing loans (NPLs) and further risk reduction in the Banking Union
- 7 January 2019: Call for advice on Call for advice to the EBA on a benchmarking of national loan enforcement frameworks
- 28 November 2018: Third progress report on the reduction of non-performing loans (NPLs) and further risk reduction in the Banking Union
- 14 March 2018: Legislative package on Package of measures to address the risks related to high levels of NPLs in Europe
- 14 March 2018: Second progress report on the reduction of non-performing loans (NPLs)
- 18 January 2018: First progress report on the reduction of non-performing loans (NPLs)
- 10 July 2017: Public consultation on development of secondary markets for non-performing loans and distressed assets and protection of secured creditors from borrowers’ default
Relevant Legislation
The ongoing efforts to address NPLs involve continuous updates and expert consultations to refine the strategies and tools used by EU Member States and institutions.
Basic information
- Text of the Credit Servicers and Credit Purchasers Directive (2021/2167/EU)
- Summary of the legislation: Buying residential immovable property – rules on loans & Framework for credit servicers and credit purchasers
Transposition by EU Member States Transposition history of the Credit Servicers and Credit Purchasers Directive by EU Member States
Legislative history
- Original legislative proposal for the Credit Servicers and Credit Purchasers Directive
- Impact assessment accompanying the legislative proposal for the Credit Servicers and Credit Purchasers Directive
- Executive summary of the impact assessment accompanying the legislative proposal for the Credit Servicers and Credit Purchasers Directive
- History of the legislative initiative on the development of secondary markets for non-performing loans
