European Commission presented NPL strategy
Last Wednesday, the EU Commission presented a comprehensive NPL strategy in Brussels. The goal of implementing this plan is to prevent European banks from accumulating a large amount of bad loans as a result of the COVID 19 pandemic. The Commission wants to ensure that Europe’s financial institutions continue to provide loans to private households and companies in order to successfully navigate the Corona crisis.
Executive Vice-President Valdis Dombrovskis of the EU Commission makes it clear that the NPL issue must be addressed “early and decisively” if banks are to continue to support businesses and households: “We are taking preventive and coordinated action now. Today’s strategy will help contribute to Europe’s swift and sustainable recovery by helping banks to offload these loans from their balance sheets and keep credit flowing”.
The European Commission proposes a series of measures with four main objectives:
- Further developing secondary markets for distressed assets: This will allow banks to move NPLs off their balance sheets, while ensuring further strengthened protection for debtors.
- Reform the EU’s corporate insolvency and debt recovery legislation: This will help converge the various insolvency frameworks across the EU, while maintaining high standards of consumer protection.
- Support the establishment and cooperation of national asset management companies (AMCs) at EU level: Asset management companies are vehicles that provide relief to banks that are struggling by enabling them to remove NPLs from their balance sheets.
- Precautionary measures: Given the special circumstances of the current health crisis, authorities have the possibility to implement precautionary public support measures, where needed, to ensure the continued funding of the real economy under the EU’s Bank Recovery and Resolution Directive and State aid frameworks.