On 14 March 2018, the Commission proposed an ambitious and comprehensive package of measures to tackle non-performing loans (NPLs) in Europe, capitalising on the significant progress already made in reducing risks in the banking sector.
The proposal (which measures are point out in bullet points below) consist of a Directive on credit servicers (here), a Regulation that amends the existing Capital Requirement Regulation (CRR) for banks (here) as well as a technical blueprint for how to set up a national Asset Management Companies (AMCs) (here). Accompanying the proposal, is the second progress report on the reduction of NPLs in Europe (here) and which shows that the trend of falling NPL ratios is continuing and that the quality of banks’ loans portfolios improved.
Today’s Action Plan, set out the following measures:
- Ensuring sufficient loss coverage by banks for future NPLs
- To prevent a future build-up of non-performing loans, the Commission is proposing a Regulation that amends the existing Capital Requirement Regulation (CRR) for banks (available here). The proposal establishes common minimum levels for the amount of money banks need to set aside to cover losses caused by future loans that turn non-performing. In case a bank does not meet the applicable minimum level, deductions from own funds would apply.
- The minimum coverage levels will act as a statutory prudential backstop for newly originated loans that become non-performing. The Commission further proposes to introduce a common definition of non-performing exposures (NPE), in accordance with the one already used for supervisory reporting purposes.
- Providing more efficient value recovery from secured loans
- The Directive on credit servicers (available here), credit purchasers and the recovery of collateral will provide secured creditors with an efficient mechanism to recover the value from loans guaranteed with collateral when the borrower of a loan defaults.
- Facilitating out-of-court collateral enforcement will allow banks to seize the collateral that underpins a loan in an expedited way, without going to court.
- Out-of-court collateral enforcement is strictly limited to loans granted to businesses. Consumer loans are excluded. It is only applicable where the business explicitly agreed to it when concluding the loan contract.
- Establishing a secondary market for NPLs
- The Directive on credit servicers, credit purchasers and the recovery of collateral will also foster the development of secondary markets for NPLs by removing undue barriers to credit servicing and to the transfer of bank loans to third parties across the EU (‘passporting’).
- The proposal defines the activities of credit servicers, sets common standards for authorisation and supervision and imposes conduct rules across the EU.
- Purchasers of bank loans are required to notify authorities when acquiring a loan. Third-country purchasers of consumer loans are required to use authorised EU credit servicers.
- Consumer protection is ensured by legal safeguards and transparency rules so that the transfer of a loan does not affect the rights and interest of the borrower.
- Providing technical guidance on how to set up national Asset Management Companies (AMCs)
- A non-binding blueprint (available here) for how national Asset Management Companies (AMCs) or other measures can be set up in compliance with existing EU banking and State aid rules, should they find it useful.
- While considering AMCs with a State aid element as an exceptional solution, the blueprint clarifies the permissible design and state aid conditions of AMCs receiving public support.
- The blueprint suggests a number of common principles, on the set-up, governance and operations of AMCs. The blueprint draws on experience and best practices from AMCs or other measures already set up in Member States.
Find out more here.