In a press release published on Friday 20 July, the European Economic and Social Committee (EESC) stressed the urgent need to act to reduce the existing stock of non-performing loans (NPL) and prevent their accumulating again in the future, whilst issuing warnings about certain aspects of the package of measures presented to this end by the European Commission in March of this year (see EUROPE 11981).
In an opinion adopted on 11 July, the Committee warns against the “one size fits all approach” set out in the proposed regulation bringing in common minimum coverage thresholds for newly issued loans that become non-performing.
More specifically, this approach fails to take account of the differences that still exist between national civil laws, or the length of time taken by proceedings before the civil courts, it states.
The EESC also considers that the timetable for the provisioning of new non-productive loans may force banks to sell such loans quickly, instead of waiting for the company in financial difficulties to return to a more viable situation.
“The proposed agenda could reduce the possibility of allowing for debt restructuring and for giving entrepreneurs a second chance. This would also have a negative impact in social terms and on the employment ratio”, explained the author of the report, Juan Mendoza Castro.
With regard to this, the EESC is proposing to launch a specific impact assessment to calculate the potential impact of this regulation on banks, the availability of household borrowing, SMEs and GDP growth.
As regards the directive aiming to promote the development of the secondary markets, the EESC is of the opinion that the regulators should not provide incentives to sell these NPLs and stresses the risk that selling on these markets will attract prices lower than the value they could achieve by means of recovery within banks.
The Committee's opinion also calls into question the benefits of the proposed accelerated extrajudicial collateral enforcement procedure. It considers that the solution to the problem of NPL lies mainly in reinforcing judicial procedures within the EU, rather than implementing a procedure of this kind.
It is worth noting that the EESC refers to the fact that the ECB has already issued its addendum on NPLs (see EUROPE 11982) without taking account of the rules of the first pillar, which are still to be adopted by the co-legislators, or waiting for the EBA's guidelines, which are still being discussed, to be finalised.
EBA stock take. On Thursday, the European Banking Authority (EBA) published its quarterly scoreboard of risks inherent to the banking sector, confirming the continued cleansing of the balance sheets of European banks, even the smallest.
On the basis of the data from the first quarter of 2018 from 152 banks, the scoreboard shows that the average NPL ratio has continued its downward trend and now stands at 3.9%, compared to 4% in the fourth quarter of 2017 (see EUROPE 11996) – its lowest level since 2014.
Even so, the EBA is still concerned by persistent gaps between member states, with ratios ranging from 0.8% in Luxembourg to 45.3% in Greece. (Original version in French by Marion Fontana)