16 December 2020

Opening remarks by Commissioner McGuinness at the press conference on the Action Plan for non-performing loans (NPLs)

Vice-President Dombrovskis introduced the rationale for this strategy: the economic shock of COVID-19, the important role of banks during the crisis, and the need to act now to prevent a build-up of NPLs.

We want to act early and decisively, so banks can keep lending and help the economic recovery.

Projections by the ECB and the EBA have indicated that the crisis could lead to more and more new NPLs.

This strategy is about preparedness. It will provide Member States and the banking industry with the necessary tools for dealing with a possible future accumulation of NPLs.

Let me talk now in more detail about the actions we've proposed.

First, developing secondary markets for distressed assets. Being able to sell distressed assets to third-party investors helps banks focus on new lending, enabling them to fund the economic recovery.

We do not want to push any bank onto the secondary market if it prefers to engage directly with its borrowers on solutions for distressed loans.

But for banks that choose to do so, a deep, liquid and transparent secondary market can help reduce NPLs, while maintaining strong borrower protection.

Last week the Parliament and the Council reached agreement on NPL securitisation as part of the Capital Markets Union Recovery package – letting banks free up capital and continue providing financing. It's an important first step.

A vital next step is for the co-legislators to quickly reach agreement on our 2018 proposal for a Directive on credit servicers, credit purchasers and the recovery of collateral. I welcome recent progress in the Parliament on credit servicers and credit purchasers.

To improve transparency, we want to simplify the NPL data templates developed by the European Banking Authority and make them mandatory, at least for new NPLs.

To put this data standard to good use, we are looking at creating an EU data hub and making use of existing data sources from the ECB and securitisation repositories.

To help smaller banks with less experience on NPL markets, we want to establish non-binding guidelines on a best-execution sales process.

Our second key area concerns insolvency, debt recovery and debt restructuring frameworks.

Experience shows that efficient insolvency and debt recovery frameworks can facilitate the workout of NPLs.

To improve collateral recovery, we hope that the co-legislators will agree soon on the legislative proposal on accelerated extrajudicial collateral enforcement.

Consumer loans are excluded and it includes clear safeguards for businesses.

In addition, we will explore possible regulatory improvements to loan enforcement regimes in the EU.

Of course, all this should happen while ensuring a high level of protection for borrowers.

These results will feed into the preparatory work for further convergence of national insolvency frameworks under the new Capital Markets Union Action Plan.

Our third key area concerns Asset Management Companies or AMCs. An AMC is an entity that centralises NPLs previously held by individual banks, helping to clean up bank balance sheets. AMCs centralise expertise and market power.

Member States are free to set up their own national AMCs, or not.

If they wish to do so, the Commission is ready to help them.

We intend to develop a cross-border network of AMCs at EU level.

Such a network would increase cooperation among national AMCs and create valuable synergies.

The fourth section in the Communication concerns the EU bank crisis management and the state aid framework.

A key lesson of the last financial crisis is to limit the use of taxpayer money to support the financial sector as much as possible.

However, the Union bank crisis management and state aid frameworks allow precautionary support by governments in exceptional circumstances.

It is logical that such exceptions could be applied during the COVID-19 crisis.

Any support would have to remain targeted and limited and not result in the bailout of non-viable banks.

Finally, the Commission is also reviewing the possible use of precautionary measures to finance the transfer of NPLs to an AMC, under the same conditions.

We need to use this opportunity to act now and be prepared for possible issues as we look towards the recovery.

We each have our role to play in the recovery. There is a difficult road ahead.

By setting out how to tackle NPLs now, we are learning the lessons from the previous crisis and making our path a bit easier.

Commission

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