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The report provides a comprehensive picture of the practices for treating NPLs in the euro area as at 31 December 2016 and supports the ECB’s continuing contribution to the dialogue on NPLs with other stakeholders in Europe.
One of the key lessons of the financial crisis and the experience of many countries with high NPL levels is that it is necessary to be proactive and prepared before NPL levels become elevated. The stocktake notes that stakeholders should make preparations in quieter times so that frameworks for managing NPLs are robust from the outset.
Current legal backlogs relating to insolvency can be traced back to the failure to establish out-of-court settlement mechanisms before NPL levels became elevated. As a result, banks in some countries cannot resolve NPL issues efficiently and their NPLs have a negative impact on their performance.
There have also been some changes to legal frameworks since the publication of the first stocktake, but these have been largely incremental in nature and it is too early to assess their effectiveness.
Stocktake of national supervisory practices and legal frameworks related to NPLs