Market / Industry / Finance & Financial Regulation / bank lending / Non-performing loans

The impact of the crisis on smaller companies and new mechanisms for non-performing loans

Posted On: Jul 22, 2020   |   Posted By: Bruegel

The impact of the crisis on smaller companies and new mechanisms for non-performing loans

In November 2019, the European Banking Authority and the Eurogroup reviewed progress in ‘risk reduction' in the euro-area banking system and highlighted the improvement in the management of non-performing loans. The NPL ratio in ECB-supervised banks had fallen to 3.1% of total loans at end-2019, from 7% in 2015, mirroring the ambitious NPL reduction targets set by the European Central Bank for about 30 high-risk banks. Several elements of the Council's 2017 NPL Action plan had been implemented, including the ‘prudential backstops', which require early provisioning, thereby discouraging banks from holding on to questionable loans.
Supervisors tackling the fallout from non-performing loans from the European debt crisis rightly prioritised disposal of NPL assets via the secondary loans markets. Industry estimates suggest that that NPLs worth €340 billion in gross value were transacted in 2018-2019 alone (though ECB figures suggest considerably lower disposals). This approach recognised that banks...

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