Expecting a resurgence of non-performing loans (NPLs), which will be much greater as the economic crisis resulting from the Covid-19 pandemic will be more acute, the European Commission does not rule out setting up a European network of national asset management companies (AMCs), or ‘bad banks’, to lighten bank balance sheets and encourage credit institutions to continue financing the economy.
“The European Commission stands ready to help Member States in setting up national AMCs”, says the Action Plan that the European institution will unveil on Tuesday 15 December and of which EUROPE has received a copy. However, the Action Plan does not propose a European ‘bad bank’, as suggested by the Chair of the ECB’s Supervisory Board, Andrea Enria (see EUROPE 11590/16).
Based on its specific ‘blueprint’ of March 2018 (see EUROPE 11981/13), the European institution suggests the creation of a “cross-border network of MCAs” to stimulate the exchange of information and experience, to improve transparency on data, and even to coordinate the actions of creditors. Particularly, such a network could also facilitate the creation of a “common platform for transactions” of NPL loans managed by the ‘bad banks’.
The Commission is also of the opinion that, in order to promote economies of scale in information, the European AMC network could feed into a European data hub and in fine increase the transparency of the market for non-performing bank loans.
Indeed, the Action Plan stresses the importance of improving the quality and comparability of NPL data in order, notably, to stimulate secondary markets. In particular, the idea is put forward of making mandatory the reporting models developed by the Banking Authority and reviewing the reporting obligations set out in the third pillar of the CRR Regulation setting out the prudential requirements for banks.
The Commission also calls on the co-legislator to rapidly adopt the Directive aimed at stimulating secondary markets for NPL loans without weakening the protection of borrowers whose loans are resold to investors. While the EU Council has adopted its position (see EUROPE 12223/10), the European Parliament is not ready to negotiate with the Member States (see EUROPE 12226/7).
Another field being explored is the harmonisation of national solvency frameworks. The Commission indicates that it will hereafter attach greater importance to this issue when presenting its annual country-specific recommendations on socio-economic policy. The institution mainly stresses the importance of adopting the proposal for a Directive to speed up the extra-judicial recovery of guaranteed secured loans, a text which excludes loans taken out by individual consumers.
Finally, the Commission plans to set up a representative advisory group whose work will be dedicated to NPL loans.
At the end of June 2020, the amount of NPLs reached 2.8% of total bank loans outstanding (compared with 2.9% at the end of March), with a total value of 588 billion euros. According to the draft Action Plan, it was highest in Greece (30.9%) and Cyprus (14.5%). In Italy, it had fallen to 6.3%.
The gradual decline in non-performing bank loans since the financial crisis of 2008 was an important factor in the decision of Eurozone countries to reform the European Stability Mechanism, the permanent rescue fund for the euro area, and to convert it into a backstop to the Single Resolution Fund (see EUROPE 12613/4). (Original version in French by Mathieu Bion and Marion Fontana)