Referring to the work underway at European and national level to deal with the question of non-performing bank loans (NPL), the European Commissioner for Financial Services, Valdis Dombrovskis, told the 15th annual conference on financial services on Tuesday 7 February that the European Commission was currently assessing “concrete initiatives on how to support the development of a secondary market for distressed debt”.
The Commission explained that a European approach is needed as the stock of non-performing bank loans, which was put at more than €1 trillion throughout the EU in June 2016, is limiting the capacity of banks to lend to the economy and maintain profitability. Although the problem is worse in certain countries, such as Italy, Greece and Cyprus, it has fallout for other member states, Dombrovskis said. This is one of the reasons the European finance ministers will discuss the matter at their informal meeting in Malta at the beginning of April.
Mario Nava, Director at the Commission, said that there are a range of different actions that may be taken, somewhere between two extremes, which are: do nothing or create a European entity to pool the risks related to NPL. The actions to be carried out could have the effect of: - supporting banks in their internal management of their NPL stocks; - making it easier for the courts to apply the national laws on matters such as insolvency; - promote a new secondary market for NPL, which would have the advantage of putting a more specific price tag on this distressed debt; - weigh up the pros and cons of public intervention.
At the end of January, the European Banking Authority (EBA) put forward the idea of a bad bank at European level (see EUROPE 11715), but the President of the ECB, Mario Draghi, has left this suggestion on the table (see EUROPE 11719).
Speaking on behalf of the Spanish Banking Association, José María Roldán said that a key issue is to look at what can be done to improve market perception of non-performing loans. Taking the example of the banking crisis in Spain, he observed that most investors were American. “There were no EU players”, he stressed. He went on to call for a “clear roadmap” on the various actions to be taken to deal with NPL. (Original version in French by Mathieu Bion)