On Tuesday 11 July, the European ministers of the economy and finance adopted conclusions establishing an action plan to tackle non-performing loans (NPL), at the meeting of the ‘Economic and Monetary Affairs’ Council in Brussels.
According to a senior European official, the NPL ratio represents 6.7% of EU GDP, or nearly €1 trillion. What sets this phenomenon apart in Europe, compared to the United States or Japan, for instance, is its permanence, and the level reached in certain jurisdictions. Despite a slow reduction over the last three years, the NPL ratio is still above 10% in ten EU countries. “This is enough of a minority to decide to do something about it”, the official said.
The conclusions, adopted on the basis of a report on the ‘NPL’ subgroup of the Financial Services Committee of the Council (see EUROPE 11806), look at 14 specific actions covering four priority areas for action.
Improving supervision. The Council argues in favour of improving the tools and practices for the supervision of NPL and calls on the Commission to publish, this summer, an interpretation of the current supervisory powers provided for in EU legislation.
The Council also advises the Commission to look at creating prudential-type support mechanisms applicable to newly issued loans. These mechanisms could take the form of a compulsory prudential deduction of NPL from capital funds, according to the text of the conclusions.
Harmonising national insolvency regimes. In its conclusions, the Council lays emphasis on the need to harmonise the national frameworks for insolvency and debt recovery. To this end, the member states will consider carrying out peer reviews by the end of 2018, in order to compare and learn from best practice.
Developing secondary NPL markets. Improving the functioning of the secondary NPL markets is also on the list of priorities identified by the Council. The member states are eagerly awaiting the forthcoming legislative proposal of the Commission aiming to promote the development of these markets, which it announced in its mid-term revision of the Capital Markets Union (see EUROPE 11804).
The Council also calls upon the Commission to draft a reference document by the end of 2017 on the creation, at national level, of asset management companies (AMC), which would lay down common principles on governance and functioning, asset evaluation rules and capital structures and would clarify the rules on state aid.
Supporting bank restructuring. Finally, the Council hopes to encourage the restructuring of the banking system in the context of NPL and calls for an ordered withdrawal from the market for non-viable banks.
According to the European Commissioner for Financial Services, Valdis Dombrovskis, this action plan is based on the “right balance between actions at national and European level” and will allow the Commission to continue its work “decisively”. (Original version in French by Marion Fontana)