COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN CENTRAL BANK First Progress Report on the Reduction of Non-Performing Loans in Europe
Date: 2018-01-18
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, action programme, banking supervision, banking system, credit institution, economic recession, economic stabilisation, financial control, financial solvency, loan

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 18.1.2018 SWD(2018) 33 final  COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN CENTRAL BANK First Progress Report on the Reduction of Non-Performing Loans in Europe {COM(2018) 37 final}  
 
 
COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL AND THE EUROPEAN CENTRAL BANK 

First Progress Report on the Reduction of Non-Performing Loans in Europe 

1.  Summary ........................................................................................................................... 3 

2.  Evolution of NPLs in Europe ........................................................................................... 4 

2.1. 

EU developments .............................................................................................................. 4 

2.2.  Developments in selected Member States ......................................................................... 4 

3.  Progress on realising the ECOFIN Action Plan ........................................................... 12 

3.1. 

The NPL issue: a priority for the EU .............................................................................. 12 

3.2.  Update of all work strands identified in the Action Plan ................................................ 13 
1. 
Interpretation of Art 16 SSMR and Art 104 CRD IV ............................................................. 13 
2.  Addressing potential under provisioning, via automatic and time-bound provisioning ......... 13 
3.  Extend SSM NPL guidelines to small (non-directly supervised) banks ................................. 14 
4.  Adopting EU-wide NPE guidelines ........................................................................................ 14 
5.  New guidelines on banks’ loan origination, monitoring and internal governance .................. 15 
6.  Develop macroprudential approaches to tackle the build-up of future NPLs ......................... 15 
7.  Enhanced disclosure requirements on asset quality and non-performing loans for all banks . 16 
8. 

Improving loan tape information required from banks on their banking book credit 

exposures ..................................................................................................................... 16 

9.  Strengthen the data infrastructure for NPLs and consider the set-up of NPL transaction 

platforms ..................................................................................................................... 17 
10.  Develop an AMC Blueprint .................................................................................................... 17 
11.  Develop secondary markets for NPLs .................................................................................... 18 
12.  Benchmarking exercise on the efficiency of national loan enforcement (including 

insolvency) regimes from a bank creditor perspective ................................................ 19 
13.  Develop the focus on insolvency issues in the European Semester ........................................ 19 
14.  Member States to consider carrying out dedicated peer-reviews on insolvency regimes ....... 20 
15.  Further analyse the possibility of enhancing the protection of secured creditors ................... 20 

1 

 
 
 
 
 
Annex 1: Insolvency issues in 2017 country specific recommendations ............................ 22 

Annex 2:  Council Conclusions of 11 July on an Action Plan To Tackle Non-Performing 
Loans in Europe ...................................................................................................................... 23 

2 

 
 
 
 
1.  SUMMARY 

The financial crisis and ensuing recessions left a number of European banks with high levels 
of non-performing loans (NPLs). Elevated levels of NPLs may affect financial stability as 
they weigh on the profitability and viability of the affected institutions and have an impact, 
via reduced bank lending, on economic growth. They require higher provisioning by banks 
and  increased  resources  to  manage  them.  As  the  subgroup  on  NPLs  of  the  Financial 
Services  Committee  concluded  in  its  report  this  risks  tying  up  banks'  resources  and  holds 
back credit supply to businesses, particularly to small and medium-sized enterprises (SMEs) 
as they rely on bank lending to a much greater extent than larger companies.1 

Considerable  progress  has  been  made  in  reducing  the  high  levels  of  NPLs  in  parts  of  the 
banking sector, in particular in recent years. The Commission has consistently emphasised 
this  issue  in  relation  to  the  countries  concerned  in  the  context  of  the  European  Semester. 
However,  significant  stocks  of  NPLs  are  still  present  in  many  banking  sectors.  In  its 
Conclusions  on  NPLs  and  building  on  the  work  initiated  by  the  Commission,  the  Council 
therefore  adopted  a  comprehensive  "Action  Plan  To  Tackle  Non-Performing  Loans  in 
Europe" on 11 July 2017.2 This Plan calls upon various actors to take appropriate measures 
to  further  address  the  challenges  of  high  NPLs  in  the  Union,  recognising  the  balance 
between necessary actions by banks, Member States and the EU. It invites the Commission 
and other institutions to take steps on several fronts to tackle both the legacy stock of NPLs 
and the risk of build-up in the future. In order to achieve this, the Action Plan identifies four 
main  areas  where  further  action  is  needed  to  tackle  NPLs:  (i)  supervision,  (ii)  reform  of 
restructuring,  insolvency  and  debt  recovery  frameworks,  (iii)  development  of  secondary 
markets for distressed assets, and (iv) fostering restructuring of the banking system. 

The Council agreed in its Conclusions to revert to this issue regularly and initially after six 
months, in order to take stock of the evolution of NPLs in the Union, the restructuring of the 
banking  sector  in  this  context  and  the  development  of  secondary  markets  for  NPL 
transactions, to assess the progress made on the basis of a stock-take from the Commission. 
This  note  is  the  Commission  services'  first  such  factual  stock-take;  it  comprises 
contributions  from  other  European  stakeholders  which  were  also  invited  by  the  Council, 
along with the Commission, to take action to support and accelerate the resolution of NPLs 
in the Union. 

Along  with  an  overview  of  the  progress  made  in  implementing  the  Action  Plan,  this 
document  also  highlights  recent  developments  of  NPLs  in  the  Union,  both  at  Union  level 
and  within  individual  Member  States.  Overall,  the  positive  trend,  with  decreasing  NPL 
ratios  and  increasing  coverage  ratios,  which  has  taken  hold  over  the  past  years,  has 
continued  in  the  second  half  of  2017.  The  total  volume  of  NPLs  continues  its  downward 
trend  and  NPL  ratios  and  coverage  ratios  continue  to  improve.  Notwithstanding  this 
encouraging progress, which is partly due to a stronger macroeconomic environment, there 
are  remaining  risks  to  financial  stability  and  to  economic  growth,  stemming  from  the  still 
elevated  level  of  NPLs.  Member  States  are  also  continuing  their  efforts  to  reduce  NPLs 
following the adoption of the Action Plan. In this first factual stock-take, preference is given 

1 Report of the FSC Subgroup on Non-Performing Loans.  

See http://data.consilium.europa.eu/doc/document/ST-9854-2017-INIT/en/pdf. 
2 Council conclusions on Action plan to tackle non-performing loans in Europe.  

See https://www.consilium.europa.eu/en/press/press-releases/2017/07/11-conclusions-non-performing-loans/. 

3 

 
 
                                                            
to a more detailed description of trends in a few countries rather than a wider, less granular, 
coverage. This document hence gives details on the evolution of NPLs for a non-exhaustive 
selection of Member States. 

2.  EVOLUTION OF NPLS IN EUROPE 

2.1.  EU developments 

The total volume of NPLs has continued its steady decline. However, despite the ongoing 
downward trend, the total volume remains at an elevated level (EUR 950 billion).3  

Structural  impediments  continue  to  hamper  banks'  efforts  to  reduce  their  NPL  stocks. 
Among  other  elements,  activity  on  secondary  markets  for  NPLs  is  not  yet  sufficient  to 
substantially contribute to NPL reduction efforts, notwithstanding the increasing volume of 
NPL-related transactions. For the purposes of this note, the term “NPL” refers to the non-
performing exposures being over 90 days past due or individually impaired. 

The quality of banks’ loans portfolios continued to improve. The latest figures confirm the 
downward  trend  of  the  NPL  ratio,  which  decreased  further  to  4.6%  (Q2  2017),  down  by 
roughly 1 percentage point year-on-year. As a result, the ratio reached its lowest level since 
Q4 2014. This reduction was mainly the result of one‐off events that impacted all bank‐size 
classes, in particular smaller banks. 

The provisioning ratio 4 has also risen, amounting to 50.8% (Q2 2017). 

In nearly all Member States, NPL ratios have been falling in recent years. This has been the 
result of stabilising economies in concert with various pro-active measures, including sales 
of NPL portfolios. Nevertheless, the slow progress in some Member States, as well as the 
widespread  dispersion  among  Member  States  remains  a  concern,  with  NPL  ratios  ranging 
from 0.7% to 46.9%. 

2.2.  Developments in selected Member States 

The stock-take by Member State is not exhaustive. In this first factual stock-take, preference 
is  given  to  a  more  detailed  description  of  a  few  Member  States  rather  than  a  wider,  less 
granular, coverage. The selection is based on the Member States' NPL ratios, the occurrence 
of important NPL-related evolutions and, especially, positive developments that might serve 
as an example to other Member States.5 

3 Source: ECB data. 
4 Source: ECB data. Due to the unavailability of provisioning data for loans, the provisioning ratio for the EU was 

calculated by considering impairments and NPLs for all debt instruments, including both loans and debt securities. 

5 In ensuing stock-takes, the selection might be widened and other Member States covered more in-depth. 

4 

 
 
 
                                                            
Table: Non-performing loans and provisions by Member State 6 

Source: ECB, Consolidated Banking Data (CBD2)  

Spain 

According  to  ECB  data,  the  NPL  ratio  dropped  from  5.9%  in  June  2016  to  5.3%  in  June 
2017. Private sector NPLs also decreased from 7.7% in June 2016 to 7.1% in June 2017. 

Spanish  banks  hence  continued  to  reduce  their  NPLs  over  the  last  year.  This  reduction 
occurred in all classes of loans, except for consumer loans where NPLs slightly increased in 

6 Notes: Figures correspond to domestic credit institutions as well as foreign-controlled subsidiaries and branches.  
* Due to the unavailability of sector-specific data for Portugal and the EU, NPL figures correspond to loans and 

advances to all sectors.  

** Due to the unavailability of provisioning data for loans, the provisioning ratios for Bulgaria, Germany, Hungary, 
Spain, and the EU were calculated by considering impairments and NPLs for all debt instruments, including both 
loans and debt securities. 

5 

2017Q22016Q22017Q22016Q22017Q22016Q2Belgium2.83.54.04.550.148.6Bulgaria12.114.019.222.454.8**53.2**Czech Republic2.94.65.36.753.145.4Denmark2.93.63.24.038.439.0Germany2.32.84.35.043.6**42.4**Estonia2.02.12.52.744.650.2Ireland11.614.615.818.937.642.2Greece46.947.250.650.149.249.8Spain5.35.97.17.759.9**59.8**France3.43.94.64.959.760.2Croatia11.711.616.516.968.871.8Italy12.216.215.920.052.949.5Cyprus33.437.652.756.247.138.8Latvia5.95.59.38.943.853.6Lithuania3.75.04.96.536.337.5Luxembourg0.70.91.82.351.639.2Hungary10.415.015.323.066.4**63.8**Malta3.74.66.77.441.844.3Netherlands2.32.63.03.138.341.8Austria4.16.05.77.562.659.1Poland6.66.77.27.358.060.5Portugal15.517.615.5*17.6*49.447.6Romania8.511.311.015.369.462.3Slovenia11.416.314.721.270.470.1Slovakia4.15.14.75.768.963.4Finland1.41.42.12.131.935.8Sweden1.21.21.41.534.834.5United Kingdom1.62.22.52.2*40.639.4European Union4.65.64.7*5.6*50.8**47.6**Private sector NPLs (% of private-sector loans)Total loss provisions (loans)  (% of total doubtful and non-performing loans) Gross NPLs and advances (% of total gross loans and advances) 
 
 
                                                            
parallel  with  the  rapidly  growing  consumer  lending.  The  decline  in  the  volume  of  NPLs 
would  have  been  higher  without  the  impact  of  the  new  Annex  9  accounting  rules  – 
introduced by the Bank of Spain – which toughened the classification criteria for performing 
loans.  In  the  12  months  up  until  and  including  August,  the  total  loans  volume  to  non-
financial  corporations  (NFCs)  and  households  decreased  by  about  EUR  33  billion, 
continuing  the  decline  in  the  aggregate  stock  of  credit  in  Spain  since  August  2009.  This 
decline in the denominator slows down the fall in the NPL ratio.  

Despite the improvements described above, NPLs remain high in certain NFC sectors. Most 
notably, according to local data, the NPL ratios for the construction and real estate sectors 
stood  at  25.2%  and  20.8%  respectively,  as  of  September  2017.  In  the  first  half  of  2017, 
banks  further  reduced  forborne and  foreclosed  assets.  According  to  EBA data  on  sampled 
banks,  forborne  loans  continued  to  decline  and  their  ratio  in  total  credit  went  down  from 
6.2%  at  end-2016  to  5.6%  in  June  2017.  As  in  2015,  sales  of  existing  foreclosed  assets 
(amounting  nearly  to  15%  of  the  stock  of  foreclosures  at  the  end  of  2015),  exceeded 
additions of new foreclosures (around 12.3% of the stock). 

The  reduction  of  NPLs  in  Spain  is  likely  to  continue  at  a  brisk  pace,  supported  by  the 
announcement of large portfolio disposals by the two largest banks, Santander and BBVA. 
Both  banks  agreed  to  sell  majority  stakes  to  private  investment  firms  in  their  legacy  real 
estate portfolios which have a combined gross book value of EUR 43 billion. Beyond these 
two big operations, additional smaller operations for the sale of NPLs and foreclosed assets 
have already been finalized or are ongoing. 

Following the resolution of Banco Popular, some banks have started to accelerate the clean-
up of balance sheets with potential benefits going forward. Spanish banks also continued to 
improve  their  efficiency  in  the  first  half  of  2017  and  according  to  data  by  the  EBA  their 
cost-to income ratio improved from 52.9% at end-2016 to 50.9% in June 2017, significantly 
below the EU average (61.5%). 

On 6 June, the ECB (SSM) decided that Banco Popular was "failing or likely to fail" due to 
a  significant  deterioration  of  its  liquidity  position  therefore  triggering  adoption  of  the 
resolution  scheme  for  the  bank.  Popular  unveiled  a  EUR  3.5  billion  loss  for  2016  as  it 
booked  a  record  amount  of  EUR  5.7  billion  of  provisions  on  its  nearly  EUR  45  billion 
legacy portfolio of property loans and foreclosed assets. After booking further provisions of 
EUR 400  million and a loss of EUR 200 million in  Q1 2017 the liquidity situation of the 
bank deteriorated rapidly.  

The resolution scheme prepared by the SRB and endorsed by the Commission provided for 
the sale of Banco Popular to Banco Santander for the price of EUR 1. The purpose of this 
operation  was  to  ensure  business  continuity,  full  access  by  customers  to  deposits  and  to 
avoid  adverse  effects  on  financial  stability.  The  resolution  scheme  provided  for  the  write-
down  and  conversion  of  all  relevant  capital  instruments  of  Banco  Popular  prior  to  the 
transfer of assets to Santander in order to address the shortfall in the capital position of the 
institution.  Hence,  the  implemented  resolution  tool  ensured  full  protection  for  deposit 
holders  and  tax  payers'  money.  This  resolution  of  Popular  was  the  first  under  the  Single 
Resolution Mechanism Regulation (SRMR). 

6 

 
 
Portugal 

According to ECB data, the NPL ratio dropped from 17.9% in June 2016 to 15.5% in June 
2017,  corresponding  to  a  decrease  of  ca  EUR  8  billion  of  NPLs,7  and  the  coverage  ratio 
increased from 47.6% to 49.4%. 

The reduction of the NPL stock in the last year is evidence that Portugal continues to make 
efforts  to  address  the  legacy  NPL  problem.  Initial  steps  had  already  been  taken  by 
authorities to tackle some constraints to the recovery of NPLs, such as the ability for banks 
to  recognise  write-offs  fiscally  and  incentivise  the  creation  of  a  more  dynamic  secondary 
market for NPLs by facilitating the entry into the market of new servicing companies. The 
authorities’ main focus is on the legacy NPLs stemming from loans to NFCs, which as of 
June 2017 made up 64% of all NPLs, amounts to  some EUR 27 billion.  

An  assessment  of  the  banks’  non-productive  assets  showed  the  need  for  a  comprehensive 
and coordinated approach among relevant stakeholders currently pursued by authorities via 
a  three-pronged  strategy:  (i)  legal/judicial,  tax  and  other  relevant  reforms,  (ii)  prudential 
supervisory actions, and (iii) NPL management options. A quantitative analysis highlighted 
the heterogeneity of the NPL stock and the significant share of NFCs.8 

The legal/judicial leg of the strategy is focused, inter alia, on facilitating early restructurings 
of firms and  the use of out-of-court mechanisms, while ensuring that insolvent companies 
are  prevented  from  applying  for  various  pre-insolvency  proceedings  and  thus  benefitting 
from  standstill  protection  –  often  used  as  a  strategy  to  delay  the  inevitable  liquidation.9 
Many measures related to these objectives have been recently approved by the Portuguese 
Parliament such as the creation of i) a new legal framework to allow majority creditors to 
convert  their  credits  into  share  capital,  enforceable  before  the  court,  ii)  and  a  new  legal 
framework for voluntary out-of-court restructuring and iii) a new player – the mediator for 
companies  ‘recovery  to  assist  the  debtor.  Furthermore,  the  legal/judicial  pillar  of  the 
strategy is focused on expediting insolvency proceedings. Moreover, there is a new regime 
for  enforcement  of  collateral  arrangements  that  will  streamline  the  appropriation  of  the 
pledged assets by the creditor. 

The second leg of the strategy focuses primarily on prudential supervisory actions by using, 
but  not  being limited to, the ECB’s guidance on NPLs.10 Banks with  high levels of NPLs 
have  elaborated  5-year  NPL  reduction  plans  and  submitted  them  to  the  supervisor.  These 
plans include measures such as cash recoveries, foreclosures, sales of NPLs and write-offs 
and will be closely monitored by the supervisor. 

Lastly, various NPL management options are part of the third pillar of the comprehensive 
strategy. Banks are responsible for managing their NPL portfolios and are expected to take 
the initiative. Coordination among all entities involved in the overall strategy still remains 
essential. In addition to individual action, management options may include proposals aimed 
to  be  applicable  system-wide,  such  as  the  “coordination  platform”  being  put  forward  by 

7 Due to the unavailability of sector-specific data for Portugal, NPL figures are limited to loans and advances to all 

sectors. 

8 Refers mostly to firms exposed to 3 or more banks. 
9 A pre-condition for many measures is an efficient identification of firms that are solvent/viable from those that 

should be liquidated. 

10 While being a part of the Portuguese 3-pronged strategy, submission and revision of NPL strategies per individual 

bank are undertaken by the SSM across the euro area banking landscape. 

7 

 
 
                                                            
credit institutions – a specific approach for corporate NPLs, where loans will remain on the 
banks’ balance sheets. It aims to promote enhanced creditor coordination to expedite credit 
restructuring and/or NPL sales, on the hand, and to foster the restructuring of viable firms, 
on  the  other  hand.  The  platform  is  a  project  driven  by  Caixa  Geral  de  Depósitos,  Novo 
Banco and Millennium BCP but is also open to other lenders. It is being set up to manage 
loans  where  at  least  two  of  the  three  banks  have  a  business  relationship  with  the  same 
corporate  borrower.  The  enhanced  coordination  is  aimed  to  help  speeding  up  financial 
restructuring  of  the  debtor  companies  while  the  debtor  will  negotiate  only  with  the  entity 
instead of running parallel talks with the three lenders. It is unclear how many NPLs will be 
jointly managed by the platform as it is still in early stages of development. 

Cyprus 

According to ECB data, the NPL ratio dropped from 37.6% in June 2016 to 33.4% in June 
2017. Private sector NPLs were rather stable, moving from 56.2% in June 2016 to 52.7% in 
June 2017. 

Cyprus hence continues to make efforts to reduce the stock of NPLs in its banking system. 
A significant proportion of the stock of NPLs is linked to retail mortgages and SME lending 
backed by real estate collateral. Due to sizable deleveraging in the banking sector, the NPL 
ratios have remained relatively stable even though the stock of NPLs has been consistently 
contracting for around two years. A significant share of the NPL stock reduction has been 
due  to  the  curing  of  restructured  loans,  write  offs  and  debt  to  asset  swaps.  Exploiting  the 
strong economic growth of the country, banks are expected to continue their efforts utilizing 
all available tools for further reduction of NPLs. 

A number of initiatives have been put in place by the authorities in response. These were (i) 
new legal provisions on insolvency procedures; (ii) improvement of collateral enforcement; 
(iii) new sale of loans legislation; (iv) the introduction of NPL targeting procedures; and (v) 
supervisory actions on provisioning. 

Due  to  relatively  limited  use  of  the  insolvency  procedures,  which  were  first  adopted  in 
2015,  the  authorities  have  set  up  a  working  group  in  July  2017.  The  aim  is  to  review  the 
implementation of the legislation and to address its shortcomings by late 2018.  

With  respect  to  collateral  enforcement,  several  measures  were  taken  in  early  2017  to 
improve  the  issuance  of  title  deeds.  The  use  of  the  new  foreclosure  rules,  which  were 
adopted  in  2015,  remains  very  limited.  Some  of  the  shortcomings  in  the  law  are  being 
addressed in a recent draft bill that is currently under legal vetting.  

The  authorities  aim  to  adopt  a  legislation  framework  for  loan  securitization  by  mid-2018, 
which  may  result  in  increased  sales.  Meanwhile,  two  Cypriot  banks  have  announced  the 
creation  of  joint  ventures  with  foreign  specialised  debt  servicers  to  manage  their  NPL 
portfolios, which can facilitate sales.  

Lastly,  supervisory  pressure,  notably  through  the  Single  Supervisory  Mechanism  (SSM) 
Supervisory  Review  and  Evaluation  Processes,  led  to  a  rise  in  the  provisioning  levels  in 
early 2017. The coverage ratios for NPLs have increased from 38.8% in June 2016 to 47.1 
61.4%  in  June  2017.  Although  the  aggregate  figures  mask  divergence  among  individual 
banks, the level of provisioning in Cypriot banks is now comparable with the EU averages 
and should reflect more accurately the correct value of the real estate collateral. 

8 

 
 
Greece 

According to ECB data, the NPL ratio decreased from 47.2% in June 2016 to 46.9% in June 
2017. Private sector NPLs experienced a slight uptick, going up from 50.5% in June 2016 to 
50.6% in June 2017. 

The reduction of NPLs clearly remains the main pillar of the financial sector policy adopted 
in Greece as part of the international financial assistance programme. The slight increase in 
the NPL ratio was due to mild loan deleveraging as well as limited net NPL inflows. This 
could be linked to the delayed implementation of the programme requirements as well as the 
protracted  negotiations  under  the  second  review  of  the  third  economic  adjustment 
programme. Write-offs remain the main tool for addressing bad loans, especially in light of 
the fact that the quarterly default rate remained above 2% and still exceeded the cure rate. 
Overall, banks have met their nominal reduction targets so far. 

The  authorities  have  implemented  a  series  of  measures  that  are  meant  to  offer  banks 
effective tools to cure distressed loans. Focusing on the most recent measures, first, the out-
of-court  debt  negotiation  framework  was  set  up.  It  allows  borrowers  to  restructure  their 
loans with both private and public creditors, whereby accumulated fines and surcharges on 
tax arrears are subordinated and ultimately written down, if necessary. While the framework 
is  fully  operational  since  August  2017  and  has  attracted  some  interest  by  eligible  parties 
(approximately  370  submitted  applications  and  additional  two  thousand  in  the  pipeline), 
only a small number of cases have been successfully completed so far. In this vein, a review 
is under way considering improvements to make it more efficient. Second, banks can now 
enforce  their  rights  on  collateral  by  using  electronic  auctions.  The  first  e-auctions  were 
conducted at end-November and early December, but notaries still appear to be reluctant to 
execute  the  physical  auctions.  Third,  the  relative  liberalisation  of  the  debt  servicing 
companies licencing regime has allowed for genuine competition in the sector, with 10 non-
bank  NPL  servicers  already  licensed  and  active  in  the  market.  The  two  major  NPL 
transactions in the course of 2017 refer to a EUR 1.3 billion distressed SME loan portfolio 
(sale via a securitization vehicle) and EUR 1.5 billion unsecured consumer loans (the latter 
sold  at  single digit net  prices). Moreover, banks are  planning further sales  of portfolios in 
the context of the NPE  operational targets framework for improving asset quality that has 
been  agreed among the Bank of Greece, the ECB (in its capacity as a supervisor) and the 
supervised banks (covering the period up to 2019). 

Ireland 

According to ECB data, the NPL ratio decreased from 14.6% in June 2016 to 11.6% in June 
2017. Private sector NPLs also went down from 18.9% in June 2016 to 15.8% in June 2017. 

From the peak in 2013, NPLs have fallen cumulatively by over 60% and more than EUR 50 
billion according to national data11 with significant reductions in each of the past four years. 
A  substantial  part  of  this  reduction  of  NPLs  in  the  banking  sector  has  been  due  to  the 
widespread use of loan restructuring solutions. 

Of the remaining NPLs of approximately EUR 34 billion at September 2017 approximately 
65%  are  mortgages  and  approximately  45%  of  these  mortgages  have  been  restructured. 
Many of these mortgages will not meet the test to return to performing despite regular cash 

11 Central Bank of Ireland: Residential Mortgage Arrears & Repossessions Statistics: Q3 2017. Figures are 

approximate as data from 2013 was not in accordance with EBA definition of NPLs. 

9 

 
 
                                                            
flows. Of the mortgages on principal dwellings that are classified as restructured, 87 % were 
deemed to be meeting the terms of their current restructure arrangement.12  The number of 
accounts for principal dwellings in arrears has continued to fall every quarter since 201313.  

For those remaining in serious mortgage arrears, the Abhaile Scheme was launched in late 
2016 to provide free, independent expert advice and support on financial and legal issues.  
Abhaile  is  targeting  those  borrowers  in  very  long  term  arrears  that  have  proven  to  be 
difficult  to  engage  with.  There  continues  to  be  a  high  level  of  new  applications  to  the 
Insolvency  Service  of  Ireland,  largely  due  to  the  Abhaile  scheme,  which  includes  free 
Personal  Insolvency  Practitioner  Consultations  for  insolvent  debtors.  A  revision  to  the 
mortgage-to-rent  (MTR)  scheme  in  early  2017,  has  made  the  process  quicker,  more 
transparent,  easier  to  navigate  for  borrowers  and  ultimately  more  accessible  to  more 
households  in  mortgage  distress.  Announced  in  September  2017,  the  iCare/AIB  Housing 
scheme is also an important development in the MTR area. Eligible customers who qualify 
for  the  MTR  process  will  continue  to  live  in  their  home  as  long-term  tenants  of  iCare 
Housing  whose  purpose  is  to  provide  and  manage  social  rented  housing.  Expressions  of 
Interest from bodies interested in pursuing pilot alternative lease arrangements based on the 
MTR  model  were  sought  in  October  2017  by  the  Housing  Agency  on  behalf  of  the 
Department of Housing with a closing date of 21 December 2017.   

Buoyed  by  a  significant  recovery  in  real  estate  prices,  NAMA,  the  national  Asset 
management Company, was able to sell a substantial portion of its portfolio, generated total 
cash flows of around EUR 40 billion by end-June 2017 and redeemed all of its senior debt 
in  October  2017.  NAMA  now  aims  to  generate  a  return  of  EUR  3  billion  by  the  time  it 
winds down in 2020. 

Italy 

According to ECB data, the NPL ratio decreased from 16.2% in June 2016 to 12.2% in June 
2017. Private sector NPLs also declined from 20% in June 2016 to 15.9% in June 2017, still 
well above the average NPL ratio in the EU. 

The end of June 2017 data reflect some important NPL sales and securitisations that have 
already had their effects on banks' balance-sheets (in particular, the sale of EUR 17.7 billion 
of impaired assets by Unicredit was completed as at September 2017; the NPL securitisation 
transaction by Banca Monte dei Paschi di Siena – gross book value of EUR 26.1 billion – 
has not yet been completed). 

In 2017, NPL securitisation has developed into an important NPL disposal strategy used by 
banks to clean up their balance sheets. In 2017, banks have increased their recourse to the 
Garanzia Cartolarizzazione Sofferenze (GACS), as several transactions were completed and 
launched. In this respect, the securitisation of the EUR 26.1 billion of gross NPLs by Monte 
dei  Paschi  di  Siena  constitutes  the  biggest  NPL  securitisation  ever  on  the  Italian  market. 
Overall, based on the track record so far, the GACS appears to have been more useful for 
large-  and  medium-sized  banks  than  for  smaller  credit  institutions,  which  have  more 
difficulties  in  pooling  a  critical  mass  of  impaired  assets  and  in  providing  detailed  loan 
portfolio  data.  To  facilitate  the  securitisation  of  some  categories  of  NPLs  (in  particular  of 
unlikely-to-pay),  increase  the  scope  of  manoeuvre  of  special  purpose  vehicles  (SPVs)  and 

12 Central Bank of Ireland: Residential Mortgage Arrears & Repossessions Statistics: Q3 2017 
13 Central Bank of Ireland: Residential Mortgage Arrears & Repossessions Statistics: Q3 2017 

10 

 
 
                                                            
encourage participation in foreclosure auctions, Italy introduced several amendments to Law 
130/1999  on  the  securitisation  of  loans.  The  main  novelties  are:  i) SPVs  that  acquire  and 
securitise  NPLs  are  allowed  to  grant  new  loans  to  certain  categories  of  borrowers  in  case 
this facilitates the restructuring of the financial position of borrowers and the repayment of 
outstanding  debt;  ii)  special  purpose  vehicles  (SPVs)  are  allowed  to  buy  assets  placed  as 
collateral for secured loans.; iii) the simplification of loan transfers from originating banks 
to SPVs by exempting these transfers from the obligation to notify the borrowers.  

The  Italian  Recovery  Fund  has  become  the  main  NPL  investor  in  Italy.  Through  its 
participation in four NPL securitisation transactions involving gross NPLs of roughly EUR 
31 billion and an investment of EUR 2.5 billion, it has supported the disposal of NPLs by 
vulnerable  banks.  The  bulk  of  its  investment  (approximately  EUR  1.5  billion)  was  in  the 
securitisation  of  the  NPL  portfolio  of  Banca  Monte  dei  Paschi  di  Siena,  as  it  bought  the 
mezzanine  and  junior  tranches  issued  by  the  SPV.  Overall,  the  Fund  has  participated  in 
securitisation  transactions  with  disposal  prices  between  19%  and  32%  of  the  gross  book 
value,  which  reflect  the  different  composition,  data  quality  and  impairment  degree  of 
securitised  assets.  The  Fund  has  also  contributed  to  the  further  development  of  the  asset 
servicing  market,  as  it  entered  in  several  agreements  with  CERVED  on  the  servicing  of 
securitised  portfolios.  Notwithstanding  the  progress  so  far,  the  number  of  servicing 
companies is still limited. 

Banks have continued to upgrade their arrears management capacity, and some of them are 
still considering the internal NPL work-out as main priority, but have also made increased 
recourse to outright NPL sales. The secondary market for impaired assets has become more 
dynamic  compared  to  previous  years  thanks  to  both  domestic  and  foreign  NPL  buyers. 
Outright  sales  are  expected  to  further  increase  as  banks  are  optimising  their  NPL 
management  and  disposal  strategies  inter  alia  to  comply  with  supervisory  requirements. 
However, credit institutions are wary about the impact a rapid disposal of NPLs may have 
on their capital buffers and pricing of impaired assets. The bid-ask spread for NPLs is still 
hovering around 15% to 20%, mainly due to sub-optimal data available for some portfolios 
as well as the still long recovery time of collateral. 

Slovenia 

According to ECB data, the NPL ratio decreased from 16.3% in June 2016 to 11.4% in June 
2017. Private sector NPLs also declined from 21.2% in June 2016 to 14.7% in June 2017. 

Most  of  the  recent  reduction  is  due  to  restructuring  efforts,  repayments,  write-offs,  debt 
forgiveness  and  sale  of  NPLs  to  third  party  (private)  institutions,  the  stock  of  NPLs  of 
households remains very low, at 4.4% as of June 2017. 

Since  its  inception  in  2013  until  June  2017,  the  Slovenian  Bank  Asset  Management 
Company  (BAMC)  has  generated  cumulative  cash-flows  of  nearly  EUR  1.1  billion, 
representing nearly 60% of the fair value of the loans transferred. Most of these cash flows 
are from maturing loans on BAMC's balance sheet that have only partially been refinanced 
by  external  (i.e.  bank)  funding.  In  recent  months  loan  and  collateral  sales  appear  to  have 
picked up. The business strategy for the years 2016 to 2022 was adopted in December 2016. 
It aims to ensure the highest possible return to the state and to fully redeem bonds backed by 
state guarantees by 2022. 

The Bank of Slovenia has introduced a number of supervisory measures in the last years. In 
2015 a guidance on the organisational structure of NPL management and debt workout were 

11 

 
 
issued for banks. A horizontal analysis of the NPL exposures of all banks in Slovenia was 
performed in the same year. Subsequently, banks were required to develop NPL resolution 
strategies,  accompanied  by  operational  reduction  plans.  Furthermore,  in  March  2017  the 
Bank of Slovenia published a handbook for effective management and work out of the non-
performing debt of micro, small and medium-sized companies.14 

In  order to preserve the applicability of the above mentioned measures and the handbook, 
the Bank of Slovenia publishes the overview of the major financial ratios by industry sector 
in coordination with the Chamber of Commerce annually.15 The Slovenian Principles of the 
financial  restructuring  of  corporate  debt  were  adopted  first  by  Bank  Association  in  June 
2014, 
the  Principles  of  responsible  commercial  crediting  (November  2015)  and 
Restructuring guidelines for MSME (December 2015) followed.16 

3.  PROGRESS ON REALISING THE ECOFIN ACTION PLAN 

3.1.  The NPL issue: a priority for the EU 

The Council Action Plan recognises that the primary responsibility to tackle NPLs remains 
with the affected banks and Member States. There are indeed significant differences across 
Member States both in terms of structure and causes of the NPL problems, but also in terms 
of  legal  and  judicial  capacity.  Moreover,  a  large  part  of  effective  policy  instruments  is  at 
national level, including fiscal policy and insolvency law. 

The  interconnectedness  of  national  banking  and  financial  systems  in  the  Union  adds  a 
European  dimension  to  reducing  current  NPLs  as  well  as  preventing  future  build-up  of 
NPLs. In particular, there are important potential spill-over effects from Member States with 
high level of NPLs to other Member States, both in terms of economic growth and financial 
stability.  Weak  growth  in  some  Member  States  due  to  high  NPLs  might  affect  economic 
growth elsewhere, and investors often perceive the value and soundness of all EU banks in 
the light of weak balance sheets of just some banks.17 

The  Commission  therefore  announced,  in  its  Communication  on  Completing  the  Banking 
Union of 11 October 2017, a comprehensive package on tackling NPLs in Europe.  

This package will consist of the following parts: 
  Measures  to  further  develop  secondary  markets  for  NPLs,  especially  with  the  aim  of 
removing undue impediments to loan servicing by third parties and the transfer of loans 
following the ongoing impact assessment. 

  Measures to enhance the protection of secured creditors by providing them with more 

efficient methods of value recovery from secured loans. 

14 See https://www.bsi.si/en/publications/other-publications. 
15 See https://www.bsi.si/en/financial-stability/banking-system-supervision/supervisory-disclosure/corporate-

financial-indicators.  

16 See http://www.zbs-giz.si/zdruzenje-bank.asp?StructureId=884. 
17 Report of the FSC Subgroup on Non-Performing Loans.  

See http://data.consilium.europa.eu/doc/document/ST-9854-2017-INIT/en/pdf. 

12 

 
 
                                                            
  The  possible  introduction  of  statutory  (Pillar  1)  prudential  backstops  in  order  to 
prevent  the  build-up  and  potential  under  provisioning  of  future  NPL  stocks  across 
Member States and banks via time-bound prudential deductions from own funds. 

  A  Blueprint  for  how  national  Asset  Management  Companies  (AMCs)  can  be  set  up, 
managed and closed down, within existing banking and State aid rules by building on 
best practices learned from past experiences in Member States. 

  Measures  to  enhance  the  protection  of  secured  creditors  by  allowing  them  more 

efficient methods of value recovery from secured loans. 

  Potentially,  the  introduction  of  a  common  definition  of  non-performing  exposures 
(NPE)  in  accordance  with  that  already  used  for  supervisory  reporting  purposes18,  in 
order  to  establish  a  sound  legal  basis  for  and  ensure  consistency  in  the  prudential 
treatment of such exposures. 

Furthermore, the Commission is also advancing a number of other work streams: 
  Undertaking  of  a  benchmarking  exercise  of  loan  enforcement  regimes  in  order  to 
establish  a  reliable  picture  of  the  delays  and  value-recovery  banks  experience  when 
faced with borrowers' defaults, and inviting close cooperation from Member States and 
supervisors to develop a sound and significant benchmarking methodology. 

  Fostering the transparency on NPLs in Europe by improving the data availability and 
comparability as regards NPLs, in full support of the EBA's efforts in this regard; and 
supporting  the  development  of  an  NPL  transaction  platform,  which  could  potentially 
contribute significantly to the growth in NPL trading. 

3.2.  Update of all work strands identified in the Action Plan 

1. 

Interpretation of Art 16 SSMR and Art 104 CRD IV  

The Commission issued the requested interpretation in the Single Supervisory Mechanism 
(SSM)  Review  Report  published  on  11  October  2017,  clarifying  that  EU  legislation,  in 
particular  Article  16(2)(d)  SSMR19  and  Article  104(1)(d)  CRDIV20,  already  provides 
supervisors  with  powers  to  influence  a  bank's  provisioning  policy  with  respect  to  NPLs 
within  the  limits  of  the  applicable  accounting  framework  and  to  apply  the  necessary 
adjustments to own funds (deductions and similar treatments) on a case-by-case basis. 

2.  Addressing potential under provisioning, via automatic and time-bound 

provisioning 

The Commission will introduce measures to prevent the risk of under-provisioning of future 
loans that subsequently turn non-performing. The implementation of the so-called statutory 
prudential backstops would be realised via a legislative proposal to amend the CRR.21 

To  inform  its  work,  the  Commission  carried  out  a  targeted  consultation  to  gather 
stakeholders’ views on the possible introduction of common minimum levels of provisions 

18 See Commission Implementing Regulation (EU) No. 680/2014. 
19 Council Regulation (EU) No 1024/2013 (Single Supervisory Mechanism Regulation – SSMR) 
20 Directive 2013/36/EU (Capital Requirements Directive – CRDIV) 
21 Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR) 

13 

 
 
                                                            
and deductions from own funds that EU banks would be required to make to cover incurred 
and  expected  losses  on  newly  originated  loans  that  turn  non-performing.  Such  prudential 
minimum treatment would act as a backstop, which would be directly applicable to all EU 
banks  in  order  to  put  EU-wide  brakes  on  the  build-up  of  future  loans  that  turn  non-
performing  without  sufficient  loan  loss  coverage.  The  statutory  backstops  would  be  a 
prudential tool under Pillar 1 which would come on top of (i) the use of existing supervisory 
powers  under  Pillar  2  (which  are  bank-specific  measures  following  a  case-by-case 
assessment by the supervisor), and (ii) the application of accounting standards with regard 
to  loan  loss  provisioning.  The  results  of  the  consultation  have  been  presented  to  the 
Commission Expert Group on NPLs on 14 December 2017. 

In  parallel  to  the  consultation,  the Commission  sought  technical  advice  from  the  EBA  for 
the  purposes  of  assessing  the  potential  impact  of  the  introduction  of  such  statutory 
prudential backstops on EU banks. Based on stakeholders’ feedback to the consultation and 
the  advice  from  the  EBA,  the  Commission  is  now  finalising  the  impact  assessment  on  a 
possible introduction of statutory prudential backstops which will inform the Commission’s 
decision on how to proceed on this issue. 

In  its  capacity  as  supervisor,  the  ECB  has  also  issued  a  consultation  on  its  expectations 
regarding banks’ provisioning policies for NPLs.22 

3.  Extend SSM NPL guidelines to small (non-directly supervised) banks 

The  ECB  (in  its  supervisory  capacity)  is  working  closely  with  the  EBA  to  develop,  by 
summer 2018, general guidelines on NPL management. Those guidelines would apply to all 
credit  institutions  in  the  Union  and  would  be  consistent  with  the  existing  SSM  guidance 
concerning NPLs. During 2018, it will be assessed whether the SSM non-performing loans 
guidance  should  be  extended  to  Less  Significant  Institutions  (LSIs)  within  the  Banking 
Union 

4.  Adopting EU-wide NPE guidelines  

In order to enhance supervisory guidance, the EBA will issue guidelines on non-performing 
exposure  (NPE)  management  and  on  banks’  loan  origination  monitoring  and  internal 
governance  (see  item  5  below).  For  this  purpose,  the  EBA  established  a  Task  Force  on 
NPLs (NPL TF). Participants in this NPL TF are members from the NCAs and the ECB. 

As per the Council’s mandate, the guidelines on NPE Management will be consistent to the 
ECB’s guidance on NPLs applicable to significant credit institutions – which was published 
in March 2017. The EBA guidelines will have an extended scope and will hence apply to all 
banks in the Union.  

The  major  issues  discussed  in  the  NPL  TF  are  aspects  on  proportionality  and  how  the 
guidelines  will  be  applied  to  smaller  banks  (Less  Significant  Institutions  (LSIs)  in  the 
Banking  Union).  The  EBA's  NPL  TF  will  closely  coordinate  with  the  ECB  to  ensure 

22 Cf. ECB, Addendum to the ECB Guidance to banks on nonperforming loans, 

https://www.bankingsupervision.europa.eu/legalframework/publiccons/pdf/npl2/ssm.npl_addendum_draft_20171
0.en.pdf). 

14 

 
 
                                                            
consistency of the relevant SSM supervisory guidance for LSIs which is being developed in 
parallel to the EBA guidelines on NPE Management. 

The  EBA  draft  guidelines  are  expected  to  be  submitted  for  public  consultation  by  end  of 
March 2018. The final guidelines are expected to be published in summer 2018, in line with 
the Council’s mandate. 

5.  New guidelines on banks’ loan origination, monitoring and internal governance 

The new guidelines to be issued by EBA will leverage on the existing work from NCAs as 
well  as  on  work  on  consumer  protection  issues  and  the  relevant  existing  guidelines 
published  by  the  EBA.  The  work  on  the  new  EBA  guidelines  on  banks'  loan  origination, 
monitoring and internal governance is at a very preliminary stage. Considering the breadth 
of the topic, it is anticipated that the development of a comprehensive set of guidelines will 
be time-consuming. The work needs to be coordinated in order to consider issues related to 
consumer  protection,  macro-prudential  approaches  (to  be  aligned  with  the  relevant  work 
currently  undertaken  by  the  European  Systemic  Risk  Board  –  ESRB),  as  well  as  micro-
prudential aspects. 

It is expected that the draft EBA guidelines will be submitted for public consultation during 
summer 2018 and that the final guidelines will be published by the end of 2018.23 

6.  Develop macroprudential approaches to tackle the build-up of future NPLs 

The  ESRB  established  a  dedicated  work  stream  on  macroprudential  approaches  to  tackle 
NPLs.  The  work  stream  functions  under  the  auspices  of  the  Instruments  Working  Group 
(IWG),  one  of  the  two  permanent  sub-structures  of  the  ESRB’s  Advisory  Technical 
Committee.  

Mandate 

The  aim  of  the  work  stream  is  to  identify  possible  macroprudential  approaches to  prevent 
the emergence of system-wide NPL problems. The work will concentrate on new flows of 
NPLs.  Since  the  focus  will  be  on  prevention,  considerations  for  mitigating  policies  to 
address the current stock of NPLs shall be avoided, as this may also be within the remit of 
other institutions. 

The  work  stream  will  explore  approaches  to  be  implemented  when  the  cycle  is  moving 
upwards  (i.e.  ex-ante  approaches),  as  well  as  approaches to  deal  with  the  downturn  cycle, 
insofar  as  the  latter  address  pro-cyclicality  concerns.  The  proposed  macroprudential 
approaches  would  further  aim  to  ensure  that  their  implementation  would  not  lead  to  any 
financial disruptions  and that  ultimately the provision  of credit  to  the real economy  is  not 
affected. 

In  pursuing  its  mandate,  the  work  stream  will  work  under  the  assumption  that  the 
macroprudential toolkit is in a “steady state”. The work will therefore take into account the 
existence  of  a  fully  active  countercyclical  capital  buffer  and  of  a  full  implementation  of 
IFRS 9, among other relevant measures.  

23 As EBA is working in parallel on various NPL related work streams, a delay might occur in the delivery of the 

loan origination, monitoring and internal governance guidelines. 

15 

 
 
                                                            
Membership of the work stream 

The  work  stream  will  operate  within  the  IWG  and  will  consist  of  a  limited  number  of 
experts.  IWG  members  either  participate  directly  or  nominate  a  representative  for  their 
national authority. Technical support is provided by the ESRB Secretariat. 

Deliverables and Timeline 

A  kick-off  conference  call  took  place  on  15  December  2017  in  order  to  discuss  an  initial 
issues note. A first physical meeting will take place in mid-January 2018. A final report is 
scheduled to be presented at the ESRB’s General Board meeting of 27 September 2018.  

7.  Enhanced disclosure requirements on asset quality and non-performing loans for 

all banks 

The EBA published in December 2016 its guidelines on disclosure requirements under Part 
Eight  of  the  CRR  (‘EBA  GL2016  11’),  which  include  a  template  on  non-performing  and 
forborne  exposures  requesting  institutions  to  disclose  information  on  the  gross  carrying 
amount  and  accumulated  impairments  of  performing,  non-performing  and  forborne 
exposures, and on the collaterals and guarantees received. The template must be filled in by 
G-SIIs and O-SIIs, and is applicable as of 31 December 2017. 

Following  the  Council  mandate  to  implement,  by  the  end  of  2018,  enhanced  disclosure 
requirements  on  asset  quality  and  NPLs  to  all  banks,  the  EBA  will  broaden  the  scope  of 
application of the template on non-performing and forborne exposures currently included in 
the ‘EBA GL2016 11’ to all institutions; this disclosure for non-G-SIIs/non-O-SIIs will be 
applicable by the end of 2018.  

In  addition,  also  following  the  Council  mandate,  the  EBA  is  planning  to  implement,  with 
respect  to  all  credit  institutions  in  the  Union,  additional  disclosure  items  on  NPEs, 
forbearance  and  foreclosed  assets,  including  disclosures  aligned  with  those  currently 
recommended  in  the  ECB  guidance  to  banks  on  Non-Performing  Loans  and  other 
disclosures  that  the  NPL  TF  might  consider  relevant.  The  implementation  of  these 
disclosure items will most likely take the form of EBA guidelines. 

8. 

Improving loan tape information required from banks on their banking book 
credit exposures 

In order to strengthen the data infrastructure by uniform and standardised data for NPLs, the 
EBA  has  issued  final  templates  on  due  diligence  in  December  2017.  These  loan  tapes 
(henceforth referred to as "templates") will not be part of supervisory reporting, but banks 
and investors are encouraged to use these standardised EBA NPL templates for NPL-related 
transactions.  To  address  the  different  data  needs  during  the  screening  and  during  the 
financial due diligence / valuation phase of NPL-related transactions, two sets of templates 
were  developed:  the  “EBA  NPL  transaction  templates”,  which  will  serve  for  the  financial 
due  diligence  and  valuation  of  portfolios,  and  the  “EBA  NPL  portfolio  screening 
templates”, which will be particularly useful for the initial screening of portfolios. 

For  the  creation  of  the  EBA  NPL  transaction  templates,  1300  data  points  were  examined 
during the course of this project, in order to create a list of about 480 data points relevant for 
valuation  and  due  diligence  purposes  in  NPL  transactions.  In  order  to  minimise  any 

16 

 
 
additional  costs  in  filling  out  and  analysing  the  EBA  NPL  transaction  templates,  they 
provide references to: 

  existing  reporting  or  similar  templates  (Finrep,  AnaCredit,  ECB  /  ESMA  ABS 

templates); 

  the CRR for further definitions applied as well as ISO Codes; and  
  the Nomenclature of Units for Territorial Statistics (NUTS3) as laid out by Eurostat. 

The templates will be allocated in specific asset classes, consistently with the asset classes 
applied for the ECB / ESMA ABS templates, and are based on the market experience and 
relevance to NPL Transactions seen so far. 

The  EBA  NPL  Transaction  templates  have  been  discussed  with  various  public  sector 
stakeholders, including ESMA, ECB, the Commission and the SRB, during the development 
phase.  In  November  2017,  the  draft  templates  were  published  for  an  informal  interaction 
with the industry. 

The feedback from the industry discussion on the draft templates was analysed in December 
2017 and the final templates were published. A post-implementation phase at the end of the 
project (first half of 2018) may be necessary for accommodating additional feedback once 
the templates are used in actual transactions. 

9.  Strengthen the data infrastructure for NPLs and consider the set-up of NPL 

transaction platforms 

With respect to the NPL transaction platform, work by the ECB, the Commission  and the 
EBA has progressed rapidly and should be completed within the coming weeks. 

Kicking off the process, a high-level meeting took place in early October 2017, where the 
three institutions reached broad agreement on the collective vision for an NPL transaction 
platform and some key policy parameters were already clarified. On this basis, and in close 
cooperation  with  Commission  and  EBA  staff,  ECB  staff  prepared  a  draft  outline  for  a 
technical paper to detail various aspects of an NPL transaction platform, and subsequently 
circulated  a  draft  paper.  In  November,  a  further  meeting,  at  technical  level,  was  held  to 
discuss the draft technical paper and to clarify remaining open issues. A second draft of the 
paper was subsequently prepared and is currently being discussed by staff at this level. 

The technical paper outlines the rationale for an NPL transaction platform; contextualises a 
transaction  platform  as  part  of  wider  initiatives  to  resolve  large  stocks  of  NPLs;  provides 
detail  on  what  a  transaction  platform  is,  and  how  it  might  function;  and  outlines  some 
important operational considerations. It concludes with a roadmap for future work, to bring 
the concept to fruition. 

10.  Develop an AMC Blueprint 

The  Commission  is  developing  a  Blueprint  for  national  Asset  Management  Companies 
(AMCs) in close cooperation with the ECB, EBA and SRB. The technical level drafting of 
the Blueprint is close to being finalised. The main features of the draft Blueprint have been 
discussed with Member States in the Commission's Expert Group on NPLs on 14 December 
2017. 

17 

 
 
The Blueprint will provide practical recommendations for the design and set-up of AMCs at 
the national level, building upon best practices from past experiences. AMCs can be private 
or (partly) publicly supported with no need of State aid, if the State can be considered to act 
as  any  other  economic  agent.24  The  option  of  an  AMC  involving  State  aid  should  not  be 
seen as the default solution. Nevertheless, considering AMCs with a State aid element as an 
exceptional  solution,  the  Blueprint  aims  to  clarify  the  permissible  design  for  such  AMCs, 
consistent  with  the  EU  legal  framework,  particularly  the  Bank  Recovery  and  Resolution 
Directive (BRRD), Single Resolution Mechanism Regulation (SRMR) and State Aid rules. 

The  Blueprint  will  therefore  put  forward  a  number  of  common  principles,  such  as  the 
relevant asset perimeter, the participation perimeter, considerations regarding the asset-size 
threshold,  asset  valuation  rules,  the  appropriate  capital  structure,  and  the  governance  and 
operations of the AMC. 

Finally,  the  Commission  services  intend  to  continue  analysing  impaired  asset  relief 
measures  which  are  alternatives  to  centralised  AMCs  and  have  been  successfully 
implemented by Member States in the past, in full respect of the BRRD, SRMR and State 
Aid rules. 

11.  Develop secondary markets for NPLs 

The Commission is following up on the Action Plan in elaborating a European approach to 
foster  the  development  of  secondary  markets  for  NPLs.  This  work  is  informed  by  an 
ongoing impact assessment, the results of the public consultation on NPLs and discussions 
within the Commission's Expert Group on NPLs. 

The replies to the public consultation launched in July 2017 25 suggest that entry conditions 
and conduct rules for loan servicers play a crucial role in the development of a secondary 
market for NPLs. Many respondents consider that measures that lower entry barriers would 
increase demand and raise competitive pressure on the demand side of the NPL market. As 
most loan servicers are relatively small, respondents also estimate that such servicers would 
benefit from scale economies. Large NPL investors, on the other hand, tend to be present in 
most markets already. Further progress with the resolution of NPLs is generally judged to 
require that new and potentially smaller investors enter and bid for smaller loan portfolios, 
many  held  by  small-  and  medium-sized  banks.  The  entry  of  new,  and  particularly  also 
smaller  investors  in  the market  would  increase market  demand  for  NPLs.  In  turn, a  better 
functioning and more liquid secondary market could raise the effectiveness of other policy 
measures to tackle NPLs. In some instances the replies highlight that the potential benefits 
of AMCs and supervisory action depend importantly on rising market demand for NPLs.  

While many consultation replies support action at Union level in this regard, they also stress 
the importance of consumer protection. Moreover, stakeholders emphasise that the transfer 
of  loans  to  a  non-bank  is  governed  by  complex  legal  frameworks  which  are  enshrined  in 
national  civil  law  and  therefore  unlikely  to  be  resolved  through  a  legislative  initiative  at 
Union level. 

24This, inter alia, would mean that any transactions take place at Estimated Market Value (EMV). 
25 Public consultation on the development of secondary markets for non-performing loans and distressed assets and 

protection of secured creditors from borrowers’ default.  
See https://ec.europa.eu/info/consultations/finance-2017-non-performing-loans_en.  

18 

 
 
                                                            
The  impact  assessment  therefore  explores  different  options  to  foster  market  entry  of  NPL 
investors and of loan servicers. 

12.  Benchmarking exercise on the efficiency of national loan enforcement (including 

insolvency) regimes from a bank creditor perspective 

The  benchmarking  of  national  loan  enforcement  and  insolvency  regimes  aims  at 
establishing a reliable picture of the efficiency of various types of enforcement procedures 
available  in  national  law,  including  both  by  individual  creditors  and  collectively 
(insolvency),  secured  as  well  as  unsecured.  These  outcomes  are  heavily  influenced  by 
judicial capacity in the respective Member States, and the benchmarking therefore aims at 
depicting realistic outcomes as they are experienced in practice by (bank) creditors.  

Progress on the benchmarking exercise was presented to and discussed with Member States 
experts  at  the  September  and  December  2017  meetings  of  the  expert  group  on  NPLs, 
including the issue of lack of access to meaningful data. Going forward the benchmarking 
will  focus  on  the  duration  and  (lack  of)  efficiency  of  national  enforcement/insolvency 
systems,  and  on  gathering  aggregate,  anonymised  data  on  NPL  value  recovery  with  an 
involvement of bank supervisors. 

13.  Develop the focus on insolvency issues in the European Semester 

Issues in national corporate insolvency frameworks have been a long standing topic under 
the  European  Semester.  They  have  been  analysed  in  several  Country  Reports  and  several 
dedicated  Country  Specific  Recommendations  (CSRs)  were  adopted.  Since  2013,  CSRs 
tackling  insolvency  issues  were  addressed  in  different  years  to  twelve  Member  States: 
Bulgaria,  Cyprus,  Spain,  Croatia,  Hungary,  Italy,  Latvia,  Malta,  Portugal,  Romania, 
Slovenia, and Slovakia.  

In 2017, CSRs on insolvency were adopted for five Member States (see annex). Cyprus has 
received  a  detailed  and  comprehensive  recommendation  to  increase  the  efficiency  of  its 
judicial system and fully implement the insolvency and foreclosure frameworks. Following 
up  on  the  previous  years'  CSRs,  Latvia  has  received  a  recommendation  to  strengthen 
conflict of interest prevention for insolvency administrators. Croatia and Slovenia received 
recommendations  to  improve  efficiency  of  their  judicial  systems  through  the  reduction  of 
the  length  of  civil  and  commercial  cases.  Portugal  was  recommended  to  increase  the 
efficiency of its insolvency and tax proceedings. 

Regarding  the  outlook  for  the  current  European  Semester,  insolvency  issues  will  be 
analysed in the Country Reports 2018, which will be published in late February, and in mid-
May 2018 the Commission will issue its recommendations to the Council for CSRs. 

Apart  from  the  European  Semester,  corporate  insolvency  problems  are  also  the  subject  of 
technical  assistance  provided  by  the  Commission's  Structural  Reform  Support  Service. 
Among projects accepted in the first selection round in spring 2017, four projects concerned 
insolvency  reforms  (in  Lithuania,  Cyprus,  Croatia  and  Greece).  In  December  2017  the 
Commission proposed to amend the Structural Reform Support Programme Regulation,26 by 

26 (EU) 2017/825. 

19 

 
 
                                                            
increasing the financial envelope of the Structural Reform Support Programme and adapt its 
general objective.27 

14.  Member States to consider carrying out dedicated peer-reviews on insolvency 

regimes 

This work strand is due by  end of  2018 and, under  the ECOFIN  Action Plan, is  meant to 
build on the Commission Insolvency Benchmarking Study (see item 12 above). 

15.  Further analyse the possibility of enhancing the protection of secured creditors 

Following  the  commitment  taken  in  the  Mid-term  review  of  the  CMU  Action  Plan, 
Commission services are exploring in an impact assessment the possibility of enhancing the 
ability of secured creditors of recovering value from collateral in case of borrowers' default 
on secured loans, with a view to considering a possible legislative initiative. 

Accelerated  Extrajudicial  Collateral  Enforcement  (AECE)  refers  to  an  expedited  and 
efficient  out-of-court  enforcement  mechanism  which  enables  secured  creditors  (banks)  to 
recover value from collateral granted by companies and entrepreneurs to secure loans. This 
focus is important as NPLs tend to be lower in Member States where collateral foreclosure 
periods  are  shorter.  The  AECE  would  operate  in  relation  to  existing  security  rights  in  the 
Member States and would enable banks in all Member States to benefit from swift out-of-
court procedures to enforce collateral. 

The  impact  assessment  is  informed  by  the  results  of  the  public  consultation28,  discussions 
with  an  Expert  Group  and  a  mapping  of  Member  States'  systems  for  out-of-court 
enforcement  of  collateral.  The  latter  has  been  done  on  the  basis  of  a  questionnaire  which 
was  sent  to  the  Ministries  of  Justice  of  all  Member  States29.  On  20  November  2017, 
Commission  services  (FISMA  and  JUST)  organised  a  joint  meeting  of  experts  from 
Member  States'  ministries  of  Finance  and  Justice.  The  purpose  of  the  meeting  was  to 
exchange  views  with  Member  States  on  the  possible  core  features  of  an  AECE  and  its 
interaction and possible interference with Member States' private and public laws, including 
insolvency. 

Experts  and  stakeholders  see  benefits  in  measures  which  would  ensure  that  all  Member 
States  have  in  place  out-of-court  procedures  for  collateral  enforcement  and  that  the 
effectiveness  of  current  mechanisms  is  enhanced  to  enable  banks  to  recover  more  value 
from collateral and in a swifter manner. 

Some of the key considerations in the exploratory work are the following: 

i.  ensure  consistency  and  complementarity  of  an  AECE  with  the  2016  Commission 

proposal on preventative restructuring and second chance frameworks;  

27 See https://ec.europa.eu/info/sites/info/files/economy-finance/com_825_0.pdf. 
28 Public consultation on the development of secondary markets for non-performing loans and distressed assets and 

protection of secured creditors from borrowers’ default.  
See https://ec.europa.eu/info/consultations/finance-2017-non-performing-loans_en. 

29 13 Member States have replied to the questionnaire. 

20 

 
 
                                                            
ii.  minimise  impact  on  Member  States'  private  and  public laws,  including  property law, 
registration  rules  to  transfer  property  rights  or/and  to  constitute  security  rights,  and 
insolvency law). 

iii.  ensure  the  protection  of  corporate  borrowers  and  manage  the  potential  social  impact 
that  an  AECE  would  have  if  it  encompassed  certain  categories  of  debtors  such  as 
natural  persons.  Therefore,  consumers  should  be  excluded  from  the  scope  of  AECE, 
and a set of safeguards should be established for corporate borrowers. 

Depending  on  the  outcomes  of  the  impact  assessment,  the  Commission  may  present  a 
proposal  for  a  principle-based  framework  on  Accelerated  Extrajudicial  Collateral 
Enforcement as part of its broader package on NPLs. 

21 

 
 
 
ANNEX 1: INSOLVENCY ISSUES IN 2017 COUNTRY SPECIFIC RECOMMENDATIONS 

Cyprus,  CSR  2:  Increase  the  efficiency  of  the  judicial  system  by  modernising  civil 
procedures, implementing appropriate information systems and increasing the specialisation 
of courts. Take additional measures to eliminate impediments to the full implementation of 
the insolvency and foreclosure frameworks, and to ensure reliable and swift systems for the 
issuance of title deeds and the transfer of immovable property rights. 

Croatia, CSR 5: […] Improve the quality and efficiency of the justice system, in particular 
by reducing the length of civil and commercial cases. 

Latvia, CSR 3: Increase efficiency and accountability in the public sector, in particular by 
simplifying  administrative  procedures  and  strengthening  the  conflict-of-interest  prevention 
regime, including for insolvency administrators. 

Portugal, CSR 4: […] Increase the efficiency of insolvency and tax proceedings. 

Slovakia,  CSR  3:  […]  Improve  the  effectiveness  of  the  justice  system,  including  a 
reduction in the length of civil and commercial cases. 

22 

 
 
 
 
 
ANNEX 2:  COUNCIL CONCLUSIONS OF 11 JULY ON AN ACTION PLAN TO TACKLE 

NON-PERFORMING LOANS IN EUROPE 

The Council: 

1.  NOTES  that  the  financial  crisis  and  ensuing  recessions,  together  with  structural 
factors,  sometimes  accompanied  by  inadequate  loan  origination  practices,  have  left 
the banks in some Member States with high ratios of non-performing loans (NPLs);  

2.  RECOGNISES  that  although  in  the  majority  of  Member  States  high  NPL  ratios  did 
not  emerge  in  recent  years,  the  negative  effects  of  current  high  NPL  ratios  in  a 
substantial  number  of  Member  States  can  pose  risks  of  cross-border  spill-overs  in 
terms  of  the  overall  economy  and  financial  system  of  the  EU  and  alter  market 
perceptions of the European banking sector as a whole, especially within the Banking 
Union; 

3.  STRESSES that while banks are primarily responsible for restructuring their business 
models  and  resolving  their  NPLs  issues  in  a  timely  manner,  further  measures  to 
address  the  existing  stock  of  NPLs  and  to  prevent  the  future  emergence  and 
accumulation of NPLs would be beneficial for the EU as a whole by contributing to 
enhanced growth and reducing financial fragmentation; 

4.  NOTES  that,  given  their  magnitude,  the  current  high  NPL  ratios  in  some  Member 
States may not decline at a satisfactory pace notwithstanding the context of economic 
recovery  and  WELCOMES  the  steps  that  have  already  been  taken  and  significant 
progress made by certain concerned Member States and EU institutions and bodies to 
address this legacy issue and prevent its re-emergence; NOTES that supervisors have 
currently  the  ability  to  make  use  of  specific  tools,  such  as  where  appropriate, 
assessing  incurred  or  likely  losses  through  proper  asset  valuations;  STRESSES  that 
more  efforts  are  needed  to  restore  NPL  ratios  to  sustainable  lower  levels  and  that 
incentives  for  all  EU  credit  institutions  to  deal  with  NPLs  pro-actively  should  be 
enhanced while at the same avoiding the disruptive effects of fire sales;  

5.  EMPHASIZES  that  EU  post  crisis  regulatory  reforms,  including  steps  taken  to 
establish the Banking Union, mark a change of system to protect taxpayers’ money, 
ensure the preservation of financial stability in the euro area and the EU as a whole, 
and enhance market mechanisms in the banking sector, to which resolution tools and 
in  particular  bail-in  are essential.  Dealing  with the  issue  of  NPLs,  which  may  entail 
lifting impediments to further restructuring in the banking sector, should be consistent 
with these rules, including Directive 2014/59/EU (BRRD) and State Aid rules; 

6.  STRESSES  that  a  comprehensive  approach  combining  a  mix  of  complementing 
policy  actions,  at  national  level  and  at  the  European  level  where  appropriate,  is  the 
most effective way to address the existing stocks of NPLs  as well as the emergence 
and accumulation of new NPLs on bank balance sheets, in particular in all of the four 
following policy areas: (i) supervision, (ii) structural reforms of insolvency and debt 
recovery  frameworks,  (iii) development  of  secondary  markets  for  distressed  assets, 
and (iv) fostering restructuring of the banking system; 

23 

 
 
7.  WELCOMES  therefore  the  report  on  NPLs30  produced  by  the  Subgroup  of  the 
Financial  Services  Committee  (NPL  Report)  and  CALLS  on  Member  States,  EU 
institutions,  bodies  and  agencies  to  take  work  forward  on  policy  options  included 
therein, on the basis of these Council conclusions; 

8.  In this context, INVITES in particular: 

 

 

 

 

 

 

 

the  Commission  to  issue,  in  summer  2017,  an  interpretation  of  existing 
supervisory  powers  laid  down  in  EU  legislation  with  a  view  to  clarifying  their 
usability  as  regards  banks'  provisioning  policies  for  NPLs  under  Article  16  of 
Council  Regulation  (EU)  No  1024/2013  and  under  Article  104  of  Directive 
2013/36/EU  (CRD  IV);  following  the  Commission's  interpretation,  the  Council 
will,  if  appropriate  and  following  a  full  pros  and  cons  analysis,  consider  an 
amendment to Article 104 of the CRD IV in the context of the ongoing review of 
the CRR/CRD IV, in line with policy options set out in the NPL Report; 

the  Commission to consider,  within the framework of the ongoing review  of the 
CRR/CRD IV,  prudential  backstops  addressing  potential  under  provisioning 
which would apply to newly originated loans; these statutory backstops could take 
the shape of compulsory prudential deductions from own funds of NPL, following 
an  assessment  of  the  most  appropriate  calibrations  in  line  with  international 
practice;  

the ECB Banking supervision, together with national competent authorities within 
the  Banking  Union,  to  implement,  by  the  end  of  2018,  with  regard  to  less 
significant  institutions  in  the  Banking  Union  a  guidance  similar  to  "Guidance  to 
banks  on  Non-Performing  Loans"  issued  by  the  Single  Supervisory  Mechanism 
(SSM  Guidance)  for  significant  institutions,  with  targeted  adaptations  where 
appropriate; 

the  European  Banking  Authority  (EBA)  to  issue,  by  summer  2018,  general 
guidelines  on  NPL  management,  consistent  with  the  afore  mentioned  Guidance, 
with an extended scope applying to all banks in the entire EU;  

the EBA to issue, by summer 2018, detailed guidelines on banks’ loan origination, 
monitoring and internal governance which could in particular address issues such 
as  transparency  and  borrower  affordability  assessment;  these  guidelines  should 
leverage on existing national experiences where relevant; 

the  European  Systemic  Risk  Board  to  develop,  by  the  end  of  2018,  macro-
prudential  approaches  to  prevent  the  emergence  of  system-wide  NPL  problems, 
while  taking  due  consideration  of  procyclical  effects  of  measures  addressing 
NPLs’ stocks and potential effects on financial stability; 

the EBA, in consultation with the ESMA, and competent authorities to implement, 
by  the  end  of  2018,  enhanced  disclosure  requirements  on  asset  quality  and  non-
performing loans to all banks; 

30 doc. 9854/17 

24 

 
 
                                                            
 

 

 

 

 

the  EBA  to  issue,  by  the  end  of  2017,  guidelines  for  banks  on  loan  tapes 
monitoring, specifying minimal detailed information required from banks on their 
credit exposures in the banking book; 

the EBA, the ECB and the Commission, to propose by the end of 2017, initiatives 
to strengthen the data infrastructure with uniform and standardised data for NPLs 
and consider the setting-up of NPL transaction platforms in order to stimulate the 
development of this secondary market; 

the Commission to develop, by the end of 2017, in cooperation with all relevant 
institutions and bodies and taking into account successful national experiences so 
far, a "blueprint" for the potential set-up of national asset management companies 
(AMCs),  which  would  set  out  common  principles  for  the  relevant  asset  and 
participation  perimeters,  asset-size  thresholds,  asset  valuation  rules,  appropriate 
capital  structures,  the  governance  and  operational  features,  both  private  and 
public;  it  should  also  clarify  the  permissible  design,  consistent  with  the  EU 
legislative  framework,  including  Directive  2014/59/EU  (BRRD)  and  Regulation 
(EU) No 806/2014 (SRMR) and State Aid rules, for asset relief measures and the 
use of AMCs; 

the Commission to develop, by summer 2018, a European approach to foster the 
development of secondary markets for NPLs, in particular to remove impediments 
to  the  transfer  of  NPLs  by  banks  to  non-banks  and  to  their  ownership  by  non-
banks, while safeguarding consumers’ rights, as well as to simplify and potentially 
harmonise  the  licensing  requirements  for  third-party  loan  servicers  and  to  take 
legislative initiative in this respect, as appropriate; 

the  Commission  to  publish,  before  the  end  of  2017,  the  results  of  the 
benchmarking exercise on the efficiency of national loan enforcement (including 
insolvency)  regimes  from  a  bank  creditor  perspective,  providing  comparable 
metrics,  as  precise  as  possible,  for  recovery  rates,  recovery  times  and  recovery 
costs across Member States, and to further develop the focus on insolvency issues 
in the European Semester, taking into account on-going reforms; 

  Member  States,  to  consider,  while  building  closely  upon  the  benchmarking 
exercise,  by  the  end  of  2018  to  carry  out  dedicated  peer-reviews  on  insolvency 
regimes  across  the  EU.  acknowledging  that  legal  systems  and  insolvency 
frameworks differ widely between Member States;  

 

the  Commission  to  further  analyse  the  possibility  of  enhancing  the  protection  of 
secured creditors; 

9.  AGREES  to  revert  to  this  issue  regularly  and  initially  after  six  months,  in  order  to 
take stock of the evolution of NPLs in Europe, the restructuring of banking sectors in 
this context and the development of secondary markets for NPL transactions, to assess 
the  progress  made  on  the  basis  of  a  stock-take  from  the  Commission,  and  to  co-
ordinate the communication on NPLs in Europe. 

25