In order to prevent the accumulation of non-performing loans (NPLs) linked to the Covid-19 pandemic from leading to a credit crunch, the European Commission took the lead, on Wednesday 16 December, by presenting an action plan designed in particular to stimulate the sale of NPLs on secondary markets (see EUROPE 12622/21).
The Vice-President of the European institution, Valdis Dombrovskis, detailed the four objectives: - developing secondary markets for distressed assets; - reforming rules on corporate insolvency and debt recovery; - supporting a European network of national asset management companies ( ‘bad banks’); - making use of precautionary public support measures.
“We do not want to push any bank on the secondary markets if it can and is willing to engage directly with the borrowers on solution for distressed loans”, said EU Financial Services Commissioner Mairead McGuinness, referring to a possible doubling of the stock of NPLs. Nevertheless, if this is the case, she added, “we need deep, liquid and transparent secondary markets“ to reduce NPLs on banks’ balance sheets while maintaining strong borrowers’ protection.
In order to improve the quality and reliability of the data, the Commission proposes to simplify the European Banking Authority’s reporting templates before making them mandatory at least for future NPLs. The creation of an EU datahub, linked to a possible European network of national ‘bad banks’, would increase the transparency of secondary markets.
It should be noted that the Commission will produce guidance in the first quarter of 2021 to help smaller banks to develop an efficient process for the sale of NPLs.
Asked about the possibility for states to recapitalise ailing banks, Ms McGuinness recalled that the BRRD allows this only for “viable” institutions. This package is not money for banks, she stressed.
See the action plan: https://bit.ly/3gVQgnI (Original version in French by Mathieu Bion)