February 7, 2017 10:55 am

EBA: Pan-European bad bank to scoop up €1tr of NPLs

A trouble shared is a trouble halved, a well-known figure of speech that European Banking Authority (EBA) Chairman Andrea Enria is now planning to adopt to the mountain of bad loans weighing down the balance sheets of the banks in the Eurozone. As a part of the event “ESM seminar on European banks risks and recovery” in Luxembourg on Monday, Enria presented his idea of a publicly-funded asset management company (AMC) to which all banks in the Eurozone could transfer their bad loans to. In his speech he lined out that the financial backbone of this pan-EU bad bank would be formed by government guarantees from the euro area countries as well as funds from private investors.

NPLs in the EU ©European Banking Authority (EBA)

NPLs in the EU ©European Banking Authority (EBA)

A bad bank instead of a proper NPL market
The idea of creating a pan-EU bad bank primarily aims at a consolidation of the fractioned bad bank landscape in the Eurozone and at the central management of the non-performing loans of euro banks. But at the same time the AMC-plans counteract the efforts of creating a proper pan-European NPL market where banks of the Eurozone could convert their bad loans into liquidity. Instead the EBA is now planning to establish a cumbersome procedure which goes like this:
First the AMC would try to determine the value of the bad loans transferred by the Eurozone’s banks. Depending on the difference between the book value and the foreseeable market value, the respective banks and states would then have to pay this difference.
According to Enria, the pan-European Bad Bank would then have three years time to sell the respective non-performing loans. Possible losses which the AMC would derive from the difference between the previously determined market price and the achieved selling price would then have to be covered by the corresponding banks and/or states as precautionary recapitalizations and of course by the banks’ creditors. In other words: The bail-in rules would then be applied.

AMC some possible features ©European Banking Authority (EBA)

AMC some possible features ©European Banking Authority (EBA)

High levels of NPLs demand action
Considering that the banks of the Eurozone are still facing a trillion euro mountain of bad loans and that 10 countries show up a NPL ratio (mostly significantly) above 10%, the consolidation of the bad bank landscape in the Eurozone could appear as a sheet anchor especially to Italian banks facing almost 360 billion euros of bad loans. ESM chairman Klaus Regling welcomed Enria’s proposal and explained that the AMC should target on acquiring up to 250 billion euros of NPLs from the Eurozone’s banks forcing the AMC to issue bonds. The backing from public sector would however be needed.

Business model and impediments to sustainability ©European Banking Authority (EBA)

Business model and impediments to sustainability ©European Banking Authority (EBA)

Debitos: Leading pan European secondary debt market
The creation of a pan European bad bank would only in part help Eurozone’s banks to reduce their NPL portfolios because of tedious processes not in line with market conditions. Our Debitos plattform as the leading pan European secondary debt market offers a market-oriented alternative helping banks to reach several goals in the NPL divestiture process: Speed, transparency and significantly lower costs in reducing their non-performing loan books.
Banks benefit from access to more than 420 institutional investors realizing a number of advantages:

  • determination of the auction’s duration
  • setting of a reserve price that must be met for a transaction to close
  • revision-proof true transferring all sale risks in their entirety together with potential future revenues to the final buyer.

Further advantages banks gain are the free indicative valuation of bad debts, the reduction of the internal complexity of co-ordination, the maximization of revenues thanks to simultaneous addressing of more than 420 qualified investor and full transparency during all phases of the real-time auction process. The unrivalled speed of Debitos’s auctions is another major advantage as due diligence, valuation and pricing are directly portrayed over our platform.
In a word: Debitos as the leading pan European secondary debt market offers a number of convincing arguments, which certainly also persuade the EBA in general and Mr. Andrea Enria in particular to pay a visit to our plattform.
Please consult the above cited websites for further information:
European Banking Authority (EBA):

Reuters online:

This post was written by Timur Peters

Timur Peters is the founder of Debitos GmbH. He holds a diploma in finance and law. He has more than 10 years’ experience in the range of finance.
Before Founding Debitos Timur Peters was responsible in the distribution of Software for Banks and Financial Institutions for Comarch for the D/A/CH Region. Next to this he has worked for several years as a self employed Project Consultant in the area of Financing of Litigation cases, Peer2-Peer Credit Marketplaces and other online projects for financial institutions.


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