The reinforced solidity of the banking sector, the continued reduction of non-performing loans (NPLs) and the imminent completion of the reform of European banking prudential rules testify to the significant efforts made at European level to reduce financial risks.
This is why, as the current legislature ends in spring 2019, the European Commission believes that there is an ‘urgent’ need for parallel progress on risk sharing in a specific Communication adopted on Wednesday 28 November.
The European institution calls on the Eurozone Summit in mid-December to endorse the Eurogroup's work on the creation of a backstop for the Single Resolution Fund, the financial arm of the resolution pillar within the eurozone banking union, and to give political impetus to the establishment of a European Deposit Guarantee Scheme (EDIS), the third and final pillar of the banking union.
In addition to the positive results of the banking stress tests unveiled by the European Banking Authority at the beginning of November (see EUROPE 12130), the Commission's third report shows a steady reduction in the risks associated with non-performing loans.
The average NPL rate in EU banks stood at ‘3.4%’ of total loans at the end of the second quarter, which is ‘1.2 percentage points’ lower than at the end of the second quarter of 2017, according to Financial Services Commissioner Valdis Dombrovskis.
However, this average rate hides ‘pockets of weakness’ in the EU. The ratio of NPL to total loans is still 44.9% in Greece, 28.1% in Cyprus, 11.7% in Portugal and 10.0% in Italy. Conversely, this rate was only 1.1% in Finland and 0.6% in Luxembourg at the same time.
The Commission therefore considers that the implementation of the 2017 European Action Plan on impaired loan reduction, which is already well advanced, must be completed in order to allow banks to clean up their balance sheets and lend more to economic actors.
In particular, several legislative proposals resulting from this plan and presented in the spring (see EUROPE 11981), such as the introduction of common minimum coverage thresholds for bank loans that become non-performing (see EUROPE 12129) and the creation of a passport to develop secondary markets for NPLs, should be finalised before the end of the legislature.
On Wednesday, the Commission highlighted ongoing work on the creation of an EU-wide technical platform for the exchange of non-performing loans, an industry-led initiative. By bringing together interested stakeholders, this platform could facilitate the exchange of information and reduce transaction costs. The European institution is asking the industry to provide technical standards for the development of this platform by spring 2019.
CMU. It should be noted that the European institution reiterates its call for work to be speeded up in order to make the Capital Markets Union a reality. "Brexit makes the realisation of this union even more urgent", stressed Mr Dombrovskis, citing proposals on the table such as the harmonisation of covered bonds, the pan-European personal pension product (PEPP) (see EUROPE 12117), the supervision of investment firms, sustainable finance.
For more information: http://bit.ly/2KE2W2c. (Original version in French by Mathieu Bion with Lucas Tripoteau)