The Ministers of Finance of the Member States of the European Union held an exchange of views on Wednesday 4 November on the issue of non-performing loans (NPLs), the stock of which will increase all the more sharply as the economic crisis resulting from the Covid-19 pandemic will be long-lasting and acute.
It is too early to quantify the increase in this stock, but it will have an impact on bank balance sheets and the ability of credit institutions to lend to the real economy.
Since the financial crisis of 2008, “there has been progress in reducing NPL loans, but given the evolution of the pandemic, we will face an increase” of these loans, said German Minister Olaf Scholz at the end of the Ecofin Council. It called for rapid progress in the legislative process to deal with the stock of non-performing bank loans.
Since the European elections in May 2009, the European Parliament has not been able to adopt its negotiating position on the legislative proposal to facilitate the creation of a secondary market for NPL loans (see EUROPE 12226/7).
“This should be a top priority”, European Commission Executive Vice-President Valdis Dombrovskis said at the end of September (see EUROPE 12568/4).
On Wednesday, he recalled that the European institution will present, in early December, a revision of the 2018 action plan on the treatment of NPLs (see EUROPE 11981/13) which will again look at the creation of a secondary market for non-performing loans. The plan will also set out avenues for convergence between national insolvency and debt recovery frameworks, which determine the execution of loans.
Asked about possible discussions on the creation of a network of national bad banks or even a dedicated European entity for the treatment of NPLs, Mr Dombrovskis said that these structures would be examined in the Action Plan in the light of the current pandemic situation and, in particular, the temporary regulatory framework on state aid.
“The debate needs to continue” as national practices vary “enormously” between Member States, Mr Dombrovskis noted.
The proposal by the chairman of the single supervisory board, Andrea Enria, to set up a European ‘bad bank’ (see EUROPE 12590/16) is “not feasible”, but we could have a European network of national defeasance structures, a national diplomatic source said on Tuesday 3 November. “We don’t know if the Commission will come up with such a proposal”, she added. (Original version in French by Mathieu Bion with Marion Fontana)