COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK Third Progress Report on the reduction of non-performing loans and further risk reduction in the Banking Union
Date: 2018-11-28
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU banking union, European Banking Authority, European Central Bank, action programme, bank, banking supervision, credit policy, financial risk, financial supervision, loan

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.11.2018 COM(2018) 766 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK Third Progress Report on the reduction of non-performing loans and further risk reduction in the Banking Union {SWD(2018) 472 final}  
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE 
EUROPEAN CENTRAL BANK 

Third Progress Report on the reduction of non-performing loans and further risk 
reduction in the Banking Union 

INTRODUCTION 

In  the  current  economic  and  financial  context,  the  European  Union  should  seize  the 
opportunity to reinforce the Economic and Monetary Union. In line with the Commission’s 
roadmap  of  6 December  2017  for  deepening  the  Economic  and  Monetary  Union1,  and 
corresponding to the Leaders’ Agenda2, completing the Banking Union remains one of the 
Union’s key policy objectives. Completing the Banking Union will further reinforce trust in 
the banking sector and more widely in the Economic and Monetary Union. This will boost 
the Economic and Monetary Union’s resilience to adverse shocks by enabling more private 
risk sharing across borders. 

This  Communication  is  a  contribution  to  the  European  Council  and  the  Euro  Summit  in 
inclusive  format  of  27  EU  Member  States  in  December,  which  will  discuss  progress  in 
reinforcing  the  European  Stability  Mechanism  and  completing  the  Banking  Union, 
including  further  steps  towards  a  European  Deposit  Insurance  Scheme,  in  line  with  the 
statement of the June Euro Summit in inclusive format. This progress should take place in 
parallel to progress in risk reduction. 

As  the  Commission  emphasised  in  its  Communication  of  11 October  20173,  the  Banking 
Union should be completed by achieving risk reduction and risk sharing in parallel, based 
on  the  Council  Roadmap  of  June  20164.  Risk  reduction  and  risk  sharing  complement  and 
reinforce each other. Progress in the various domains, including agreement on the backstop 
to  the  single  resolution  fund  and  a  European  Deposit  Insurance  Scheme,  should  therefore 
take place in parallel. 

One of the key areas for reducing risk in the European banking sector is the further decline 
of non-performing loans (NPLs). The financial crisis and subsequent recessions led to more 
widespread  inability  of  borrowers  to  pay  back  their  loans,  as  more  people  and  companies 
faced  continued  payment  difficulties  and  even  bankruptcy.  This  was  particularly  so  in 
Member States that faced long or deep recessions. Consequently, many banks saw a build-

1   COM(2017) 821. 

2   http://www.consilium.europa.eu/media/21594/leaders-agenda.pdf. 

3   https://ec.europa.eu/info/publications/171011-communication-banking-union_en. 

4   http://www.consilium.europa.eu/en/press/press-releases/2016/06/17/conclusions-on-banking-union/. 

1 

 
 
 
                                                           
up  of  NPLs  on  their  books.  High  NPL  ratios  remain  an  important  challenge,  for  some 
Member States in particular. High stocks of NPLs can weigh on banks’ performance. First, 
NPLs  generate  less  income  for  a  bank  than  performing  loans  and  thus  reduce  its 
profitability,  and  may  cause  losses  that  reduce  the  bank’s  capital.  Second,  NPLs  tie  up 
significant  amounts  of  a  bank’s  resources,  both  human  and  financial.  This  reduces  the 
bank’s  capacity  to  lend,  including  to  small  and  medium-sized  enterprises.  In  turn,  this 
negative  effect  in  terms  of credit supply also reduces the capacity of businesses to  invest, 
hence creating a tangible effect on the real economy. 

In  order  to  reduce  the  high  NPL  stocks,  the  Union  agreed  on  a  comprehensive  set  of 
measures outlined in the “Action Plan to Tackle NPLs in Europe”5, which is currently being 
implemented.  In  response  to  this  need  and  going  beyond  the  2016  Council  Roadmap,  the 
Commission presented a dedicated and comprehensive package of measures in March 2018 
to further reduce NPLs. The Council also agreed to revert to the issue of NPLs on a regular 
basis and to assess the progress made on the basis of a stocktake by the Commission. This 
Communication is the Commission’s third such progress report in response to the Council’s 
expectation. It is complementary to the Progress Report on the Capital Markets Union, also 
adopted today. 

1.  THE BROADER CONTEXT: RISK REDUCTION IN THE UNION 

Over the last decade, the Union and its Member States have worked hard to reduce risk in 
the banking sector.6 A series of measures taken since the financial crisis have strengthened 
banks’  solvency,  leverage  and  liquidity  positions  in  significant  and  practical  ways,  have 
substantially  improved  governance  within  and  supervision  of  the  banking  sector  and  have 
significantly enhanced banks’ resolvability. The average Tier 1 capital ratios7 of euro area 
banks directly supervised by the Single Supervisory Mechanism have risen, from 14.18 % in 
Q2-2017 to 14.67 % in Q2-2018. This strengthening of capital positions is also reflected in 
higher  leverage  ratios.  The  average  leverage  ratio8  increased  further  from  5.08 %  in  Q2-
2017  to  5.14 %  in  Q2-2018.  Euro  area  banks  also  maintained  their  resilience  to  liquidity 
shocks, as the liquidity coverage ratio remained stable at 140.92 % in Q2-2018, compared to 
142.79 % in Q2-2017. This all testifies to the determined action taken to reduce risk across 
the euro area. As a result, risks have been more effectively and evenly addressed. The recent 
stress test further shows that banks’ efforts to build up their capital base in recent years have 
strengthened their resilience and capacity to withstand shocks, underlining the health of the 
European banking system. 

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

6   See also: ‘Monitoring report on risk reduction indicators’: 

https://www.consilium.europa.eu/media/37029/joint-risk-reduction-monitoring-report-to-eg_november-
2018.pdf.  

7   The  tier  1  capital  ratio  is  the  ratio  of  a  bank’s  core  tier  1  capital  –  i.e.  its  equity  capital  and  disclosed 

reserves – to its total risk-weighted assets. 

8   I.e. the fully loaded leverage ratio (dividing Tier 1 capital by the bank’s total assets) that is calculated in a 
more stringent manner and presented before 2019, when the transitional phase ends. The softening effect of 
the transitional implementation period is ignored. 

2 

 
 
                                                           
As  outlined  in  the  2017  Banking  Union  Communication9  and  confirmed  by  the  Second 
Progress  Report  on  the  Reduction  of  NPLs10,  the  Commission  has  put  forward  further 
substantial  and  complementary  measures  to  reduce  risk  and  enhance  the  resilience  of  the 
European  banking  sector.  For  example,  in  November  2016,  the  Commission  proposed  the 
banking  “risk  reduction  package”,  a  significant  legislative  package  reviewing  the  Bank 
Recovery and Resolution Directive (BRRD), the Single Resolution Mechanism Regulation 
(SRMR),  the  Capital  Requirements  Directive  IV  (CRDIV)  and  the  Capital  Requirements 
Regulation  (CRR),  with  the  objective  of  further  reducing  remaining  risks  in  the  banking 
sector.11 The Commission welcomes significant progress in trilogue discussions between the 
European Parliament, the Council and the Commission on this package which should pave 
the way for an agreement before the end of the year. In 2016, the Commission also adopted 
a  proposal  for  a  directive  on  preventive  restructuring  frameworks,  second  chance  and 
measures to increase the efficiency of restructuring, insolvency and discharge procedures.12 
Effective restructuring and insolvency rules are indeed essential to preventing and reducing 
NPLs. 

Table 1: Delivering on the roadmap to complete the Banking Union 

POLICY DESCRIPTION 

EUROPEAN  
PARLIAMENT 

COUNCIL OF 
MINISTERS 

1. 

2. 

3. 

 European Deposit Insurance Scheme 

 Capital Requirements Reform 

Loss-absorbing and recapitalisation 
capacity (Reg. & Dir.) 

4. 

 Common backstop 

5. 

6. 

Further developing secondary markets 
for NPLs including more efficient 
value recovery 

Minimum loss coverage for non-
performing exposure 

 AGREEMENT POSSIBLE IF STRONG POLITICAL COMMITMENT FROM ALL UNION 
INSTITUTIONS 

 SWIFT AGREEMENT POSSIBLE BY FOLLOWING NORMAL PROCEDURES 

9   COM(2017) 592 of 11 October 2017. 

10   COM(2018) 133 of 14 March 2018. 

11   http://europa.eu/rapid/press-release_IP-16-3731_en.htm. 

12   COM/2016/0723 - 2016/0359 (COD). 

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2.  RECENT DEVELOPMENTS OF NON-PERFORMING LOANS 

NPL ratios continued to decline in the first half of 2018. This followed and confirmed the 
overall trend of improvement over recent years. The latest figures show that the gross NPL 
ratio for all EU banks further declined to 3.4 % (Q2-2018), down by 1.2 percentage points 
year-on-year (see Figure 1). The NPL ratio of significant institutions13 also decreased over 
the same timeframe by almost one percentage point to 4.4 %. The ratio has thus continued 
its downward trend since Q4-2014. Additional data sources with regard to the longer term 
trend indicate that the NPL ratio is approaching pre-crisis levels again (see Figure 2). The 
provisioning ratio14 has also further improved and has risen to 59 % (Q2-2018). 

Figures 1 and 2: Non-performing loans ratio in the Union 

NPL  ratios  have  fallen  in  nearly  all  Member  States.  However,  the  situation  continues  to 
differ  significantly  between  Member  States  (see  Table  2).  At  the  end  of  Q2-2018,  12 
Member  States  had  low  NPL  ratios  of  below  3 %,  while  there  are  still  some  with 
considerably  higher  ratios  –  3  Member  States  had  ratios  above  10 %.  Even  in  Member 
States with relatively high NPL ratios, there is encouraging and sustained progress in most 
cases due to a combination of policy actions and economic growth. 

This reduction in NPLs and NPL ratios has been facilitated by determined action – by bank 
management  and  policymakers  –  particularly  in  Member  States  with  relatively  high  NPL 
levels. There is a trend across Member States towards further improving risk management 
practices  (especially  in  vulnerable  banks)  and  strengthening  provisioning  of  NPLs,  hence 
improving banks’ capital positions. For instance, in Spain, following the resolution of Banco 

13   I.e.  credit  institutions  that  are  directly  supervised  by  the  European  Central  Bank,  in  its  supervisory 

capacity. 

14   This ratio indicates the extent of funds a bank has kept aside to cover loan losses. 

Source: European Central Bank. 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 (loans and 
debt securities). 

4 

 
 
 
                                                           
Popular  in  2017,  other  banks  accelerated  the  clean-up  of  their  balance  sheets.  In  Cyprus, 
NPLs have continued to fall since the end of 2015 and are expected to decline more sharply 
in the second half of this year, when a sizeable NPL portfolio is removed from the banking 
system,  supported  by  a  considerable  volume  of  NPL  sales.  The  continued  use  of  NPL 
securitisation schemes also provides an impetus to NPL reduction. In Italy, the securitisation 
scheme supported by state guarantees (known as the Garanzia Cartolarizzazione Sofferenze 
or GACS) was introduced in 2016 and extended for another six months in September 2018. 
Several  other  market  infrastructure  initiatives  are  also  supportive  in  tackling  NPLs.  For 
example  in  Portugal,  initiatives  to  promote  coordination  between  creditors  (to  accelerate 
credit restructuring or NPL sales) are a welcome addition to the policy mix. 

Generally speaking, the environment in which banks can work out their NPLs has improved 
significantly since the crisis. As a result, banks have been able to build on restored stability 
in the financial system, partly with the aid of a better and clearer regulatory framework. This 
stability has enabled banks to enhance their internal capacity to manage and resolve NPLs. 
In  many  cases,  banks  have  developed  these  activities  into  dedicated  stand-alone  entities. 
Beyond this capacity, banks have also taken advantage of an expansion in available external 
loan services, which have supported the increasing outsourcing of NPL resolution activities. 
The  market  for  NPL  servicing  has  clearly  grown  and  has  become  more  developed 
throughout Europe. 

In  line  with  the  post-crisis  regulatory  improvements,  banks  and  other  market  participants 
have hence acquired substantial  knowledge and  experience in  resolving NPLs. The steady 
growth  in  NPL  sales  and  NPL  securitisation  has  encouraged  this  important  evolution 
towards a more mature NPL resolution environment. Yet a truly sustainable solution for the 
remaining  NPL  problem  in  Europe  depends  on  putting  further  effort  into  innovative  and 
collaborative  approaches.  Some  are  already  emerging  in  the  market,  as  comprehensive 
partnerships  have  been  taking  shape  between  different  market  participants,  for  instance 
between banks and specialised third-party servicers. This increasingly allows them to share 
knowledge and information. In this way, banks and other market players are able to make 
further  strides  in  digitalisation  and  platform  initiatives  (e.g.  creditor  coordination  or  data 
repositories). These developments hold the potential to reduce the cost of NPL management 
and  make  it  easier  to  transfer  NPLs  from  banks  to  businesses  that  are  better  equipped  to 
carry the relevant operational and financial burden. Continued specialisation among market 
participants will further improve efficiency in managing and resolving NPLs from different 
asset classes. 

These improvements are crucial in order to address the current stock of NPLs effectively. So 
far, efforts have concentrated strongly on NPLs secured by collateral and – to a lesser extent 
– on unsecured retail NPLs. A large portion of the remaining exposure consists of NPLs to 
corporate  and  small  and  medium-sized  enterprises,  particularly  in  Member  States  where 
NPLs  have  been  the  result  of  economic  recession  rather  than  of  a  crisis  of  real-estate 
markets. In general, NPLs related to corporates and small and medium-sized enterprises are 
more heterogeneous in nature and can often prove more complex to tackle. 

The management of NPLs can be seen as being at an inflection point. It has steadily matured 
from  a  crisis  activity  into  a  more  structural  and  functional  approach.  The  commercial, 
technological  and  regulatory  advances  are  falling  into  place,  yet  need  to  continue  to  be 
supported by targeted policy decisions, both at national and European level. They could then 
serve as stepping stones to enable the system to evolve into a fully sustainable structure that 

5 

 
 
is able to efficiently resolve existing stocks of NPLs as well as manage – and hence prevent 
– future accumulation. 

Table 2: Non-performing loans and provisions by Member State 15 

Source: European Central Bank, Consolidated Banking Data. Calculations by Commission services (DG FISMA) 

15   Notes: Figures correspond to domestic credit institutions and foreign-controlled subsidiaries and branches.  

*  Sector-specific  data  for  the  EU,  for  Malta  (i.e.  Q2-2018)  and  for  Spain  (i.e.  Q2-2017)  are  not  available. 
Sector-specific  data  (i.e.  total  exposure  to  households  and  non-financial  corporations)  for  Bulgaria, 
Germany and Hungary are only available in carrying amount. 

** Data for the provisioning of loans are unavailable for Bulgaria, Germany, Spain (with the exception of Q2-
2018), Hungary and the EU. In these cases, figures are based on impairments for all debt instruments (i.e. 
loans and debt securities). 

6 

2018Q22017Q22018Q22017Q22018Q22017Q2Belgium2.42.83.44.053.950.1Bulgaria9.212.114.519.264.254.8Czech Republic2.22.94.15.365.253.1Denmark2.52.92.93.235.938.4Germany1.72.32.84.383.643.6Estonia1.82.02.32.538.744.6Ireland8.511.611.815.837.637.6Greece44.946.948.450.652.249.2Spain4.15.35.2-63.359.9France2.93.44.04.665.459.7Croatia8.711.713.316.572.968.8Italy10.012.212.915.959.352.9Cyprus28.133.444.752.748.647.1Latvia5.95.98.59.338.543.8Lithuania3.13.73.94.934.936.3Luxembourg0.60.71.81.849.851.6Hungary6.710.49.215.376.566.3Malta3.23.7-6.750.041.8Netherlands2.02.32.73.035.038.3Austria2.94.14.05.765.862.6Poland7.06.67.57.267.758.0Portugal11.715.512.916.258.549.4Romania5.98.57.611.077.169.4Slovenia7.411.49.914.767.470.4Slovakia3.84.14.24.784.668.9Finland1.11.42.02.133.231.9Sweden1.31.21.51.434.534.8United Kingdom1.31.62.32.548.340.6European Union3.44.6--59.050.8Gross NPLs and advances (% of total gross loans and advances)Private sector NPLs* (% of private-sector loans)Total loss provisions (loans)**  (% of total doubtful and non-performing loans)  
 
 
 
                                                           
Despite  this  encouraging  progress,  NPLs  continue  to  pose  risks  to  economic  growth  and 
financial  stability.  The  total  volume  of  NPLs  across  the  Union  still  stands  at  EUR 820 
billion.16 Structural impediments continue to hamper a faster decline in NPL stocks. Among 
other elements, debt restructuring, insolvency and debt recovery processes continue to be a 
significant  hurdle  in  some  cases,  as  they  remain  too  slow  and  unpredictable.  Activity  on 
secondary  markets  for  NPLs  is  growing  in  some  Member  States,  supported  by  relevant 
policy  actions  (as  explained  above),  although  it  is  not  yet  sufficient  to  substantially 
contribute to NPL reduction efforts on a structural basis. That being said, the development 
of the secondary market is encouraging, as it has sustained continued momentum in several 
Member States, with banks selling large portfolios. Interest from investors is rising and the 
volume of NPL-related transactions is increasing. 

3.  PROGRESS IN IMPLEMENTING THE COUNCIL ACTION PLAN  

The Council agreed in its Action Plan to revert to the issue of NPLs on a regular basis, in 
order  to  take  stock  of  their  evolution  in  the  Union  and  to  assess  the  progress  made  in  the 
implementation of the Action Plan, based on a stocktake from the Commission. This section 
presents  the  detailed  stocktake  for  the  different  elements  of  the  Action  Plan.17  Table 3 
demonstrates  that  important  strides  have  been  made  towards  full  implementation  of  the 
Action Plan. 

Table 3: Progress in implementing the Action Plan 

16   Source: European Central Bank 

17   This is partly based on contributions from the European Central Bank, the European Systemic Risk Board 

and the European Banking Authority. 

7 

No.StatusNo.Status1Interpretation of existing supervisory powers in EU legislation as regards NPL provisioning8Improving loan tape information required from banks2Addressing potential under provisioning, via automatic and time-bound provisioning9Strengthening data infrastructure for NPLs, including potential transaction platforms3Extend Single Supervisory Mechanism NPL guidelines to small banks10Develop a Blueprint for asset management companies4Adopting EU-wide management guidelines for non-performing exposures11Develop secondary markets for NPLs5New guidelines on banks’ loan origination, monitoring and internal governance12Benchmarking of national loan enforcement and insolvency frameworks 6Develop macroprudential approaches to tackle the build-up of future NPLs13Develop the focus on insolvency issues in the European Semester7Enhanced disclosure requirements on asset quality and NPLs for all banks14Enhancing the protection of secured creditorsAccomplishedImminentOngoing 
 
 
 
                                                           
1.  Interpretation  of  existing  supervisory  powers  in  EU  legislation  as  regards  NPL 

provisioning 

The  Commission  provided  the  requested  interpretation  in  the  Single  Supervisory 
Mechanism  Review  Report  published  on  11 October  2017.  It  was  clarified  that  Union 
legislation,  in  particular  Article 16(2)(d)  SSMR18  and  Article 104(1)(d)  of  the  CRDIV19, 
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 

As part of its package of proposals on NPLs put forward in March 2018, the Commission 
proposed  a  Regulation  amending  the  Capital  Requirements  Regulation,  introducing 
common minimum coverage levels for newly originated loans that become non-performing. 
If a bank does not meet the applicable minimum level, deductions from its own funds would 
apply.  The  proposal  is  currently  under  discussion  in  the  Council  and  the  European 
Parliament.  The  Council  has  agreed  its  negotiating  position  and  the  Commission  calls  on 
Parliament  to  do  the  same  so  that  a  final  agreement  can  be  struck  before  the  end  of  the 
current legislature. 

3.  Extend  NPL  guidelines  by  the  Single  Supervisory  Mechanism  for  smaller  (non-

directly supervised) banks 

The  European  Central  Bank,  in  its  supervisory  capacity,  has  worked  closely  with  the 
European Banking Authority to finalise the recently published guidelines on management of 
non-performing  exposures  (see  point  4  below).  These  guidelines  should  be  applied  by  all 
credit institutions in the Union. Less systemic institutions should also apply the guidelines 
on a proportionate basis, in cooperation with national competent authorities. 

4.  Adopting Union-wide guidelines for non-performing exposures 

The  European  Banking  Authority  published  Guidelines  on  the  management  of  non-
performing and forborne exposures in October 2018, for banks and supervisory authorities. 
The Guidelines are aimed at effective and efficient management and a sustainable reduction 
in  NPLs  on  banks’  balance  sheets.  At  the  core  of  these  guidelines,  banks  are  expected  to 
establish strategies for non-performing exposures together with appropriate governance and 
operational  arrangements.  These  strategies  and  arrangements  are  subject  to  supervisory 
assessment under the Supervisory Review and Evolution Process. The Guidelines should be 
applied as of 30 June 2019. 

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

The  European  Banking  Authority  has  been  drafting  guidelines  on  loan  origination  and 
monitoring. The draft guidelines are planned to cover banks’ internal governance on credit 

18   Council Regulation (EU) No 1024/2013 (Single Supervisory Mechanism Regulation – SSMR). 

19   Directive 2013/36/EU (Capital Requirements Directive – CRDIV). 

8 

 
 
                                                           
risk;  assessment  of  borrowers’  creditworthiness20;  collateral  valuation;  and  banks’  credit 
risk  monitoring  activities,  covering  different  asset  classes  and  counterparties.  Given  the 
scope of the topic and its link with the consumer protection framework, e.g. assessment of 
prospective borrowers’ creditworthiness, it may take some time to draft a comprehensive set 
of guidelines. Potential interaction with stakeholders in the field of consumer protection on 
this  point  may  delay  delivery  of  the  draft  guidelines.  The  European  Banking  Authority 
expects  to  discuss  the  draft  consultation  paper  on  the  guidelines  on  loan  origination  and 
monitoring  at  the  meeting  of  its  Board  of  Supervisors  in  early  2019  and  to  publish  the 
consultation paper later that year. 

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

The European Systemic Risk Board is on course to finalise a report by the end of 2018 on 
macroprudential  approaches  to  preventing  the  emergence  of  system-wide  NPL  problems. 
The  report  also  gives  due  consideration  to  the  procyclical  effects  of  measures  addressing 
NPL  stocks  and  potential  effects  on  financial  stability.  In  the  meantime,  the  Board’s 
Advisory  Scientific  Committee  published  its  own  contribution  on  the  topic  in  September 
2018.  One  key  aspect  that  has  been  investigated  is  the  optimal  speed  and  form  of  NPL 
resolution from a system-wide perspective. 

7.  Enhanced disclosure requirements on asset quality and NPLs for all banks 

The  European  Banking  Authority  has  developed  Guidelines  on  disclosure  of  non-
performing and forborne exposures. These Guidelines aim to explain a common content and 
uniform  disclosure  formats  for  information  on  non-performing  exposures,  forborne 
exposures  and  foreclosed  assets  that  banks  should  disclose.21  They  aim  at  aligning  the 
disclosure aspects for all institutions across the Union with those currently recommended in 
the Single Supervisory Mechanism’s Guidance to banks. The European Banking Authority 
has carried out a public consultation and the final Guidelines are expected to be published in 
Q4-2018. They should be applied as of 31 December 2019. 

8.  Improve  loan  tape  information  required  from  banks  on  their  banking  book  credit 

exposures 

In order to strengthen the data infrastructure with uniform and standardised data for NPLs, 
the  European  Banking  Authority  issued  templates  for  loan  tape  monitoring  in  December 
2017.  These  templates  are  not  part  of  supervisory  reporting,  but  banks  and  investors  are 
encouraged  to  use  these  standardised  NPL  templates  for  business  transactions.22  The 

20   The European Banking Authority  will need to take into account the ongoing evaluation of the Consumer 
Credit  Directive  by  the  Commission,  so  that  interference  is  avoided  as  regards  the  provision  of  the 
Directive  on  the  assessment  of  borrowers’  creditworthiness.  The  evaluation  of  the  Consumer  Credit 
Directive  has  been  announced  in  the  2019  Commission  Work  Programme  (See  annex  II  of  COM(2018) 
800 final). 

21   These  Guidelines  broaden  the  scope  of  the  European  Banking  Authority’s  Guidelines  on  disclosure 
requirements under Part Eight of the Capital  Requirements Regulation (‘EBA  GL2016  11’) published in 
December 2016. 

22   The  European  Banking  Authority’s  asset  class-specific  NPL  transaction  templates  allow  loan-by-loan 
reporting  at  the  most  granular  level  and  contain  over  450  data  points  relevant  for  valuation  and  due 
diligence purposes in NPL transactions. 

9 

 
 
                                                           
templates cover information on loans, counterparties related to the loans and the collateral 
provided.  After  the  templates  were  issued,  additional  testing  was  carried  out  with  current 
data in the first half of 2018. Use of the templates by various institutions and the European 
Banking  Authority’s  contacts  with  stakeholders  provided  further  feedback,  and  the 
Authority published a revised version in September 2018. The Authority’s engagement with 
the  industry  confirmed  that  various  market  participants  currently  use  these  templates  for 
transactions. 

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

transaction platforms 

A Union-wide NPL transaction platform would be an electronic marketplace where holders 
of  NPLs  –  banks  and  non-bank  creditors  –  and  interested  investors  can  exchange 
information and trade. Such a platform has the potential to address several current sources 
of  market  failure  in  the  secondary  market  for  NPLs,  including  asymmetry  of  information 
between  sellers  and  buyers  and  high  transaction  costs.  As  a  result,  it  could  help  banks 
increase sales and obtain higher sales prices than currently possible, ease investor access to 
NPL markets, and thereby allow banks to dispose of NPLs and clean up their balance sheets 
faster.  Such  a  platform  could  help  deal  with  current  stocks  of  NPLs  and  provide  a 
permanent  channel  for  the  efficient  disposal  of  future  NPLs  as they  arise.  In this sense, it 
could be an important, yet low-cost, infrastructure investment preventing a new build-up of 
large stocks of NPLs in the future. It could therefore be an essential means of contributing to 
a sustainable solution to the NPL issue in Europe. 

The Council called on the European Central Bank, the European Banking Authority and the 
Commission  to  consider  setting  up  an  NPL  transaction  platform  in  order  to  stimulate  the 
development  of  secondary  markets.  This  Communication  is  therefore  accompanied  by  a 
Commission services’ staff working document on the potential set-up of such a transaction 
platform, drafted jointly by the Commission, the European Central Bank and the European 
Banking Authority. It outlines the Commission services’ view on how the arrangements for 
such a vehicle could work in practice. 

The  Commission  has  today  also  invited  industry  stakeholders  to  a  roundtable  in  order  to 
kick-start  work  on  achieving  Union-wide  NPL  platforms.  The  Commission  will  ask 
stakeholders  to  agree,  by  Spring  2019,  on  the  concrete  forms  for  developing  and  issuing 
industry  standards  for  European  NPL  platforms.  The  Commission  will,  together  with  the 
European Central Bank and the European Banking Authority, continue to play a key role in 
facilitating the taking of the necessary steps to promote the emergence of Union-wide NPL 
platforms by all relevant stakeholders. 

10. Develop a blueprint for national asset management companies  

As  part  of  the  NPL  package  of  March  2018,  Commission  services  published  a  technical 
blueprint for setting up a national asset management company, in close cooperation with the 
European Central Bank, the European Banking Authority and the Single Resolution Board. 
The  non-binding  blueprint  provides  guidance  to  Member  States  –  that  so  wish  –  for  the 
restructuring of their banks by establishing national asset management companies (or other 
measures  dealing  with  NPLs),  should  they  find  it  useful,  in  full  compliance  with  EU 
banking and State aid rules. 

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11. Develop secondary markets for NPLs 

Also  as  part  of  its  NPL  package  of  March  2018,  the  Commission  proposed  a  directive  on 
credit  servicers,  credit  purchasers  and  the  recovery  of  collateral.  One  of  the  proposal’s 
objectives  is  to  further develop  secondary markets  for NPLs by harmonising requirements 
and  creating  a  single  market  for  credit  servicing  and  the  transfer  of  bank  loans  to  third 
parties across the Union. The proposal is currently under discussion in Parliament and the 
Council. The Commission is calling for these negotiations to be finalised before the end of 
the current legislature. 

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

insolvency) regimes from a bank creditor perspective 

insolvency  frameworks.  The  Commission  services  are 

The  management  of  NPLs  would  benefit  from  more  efficient  and  predictable  loan 
enforcement  and 
therefore 
undertaking a benchmarking exercise of national loan enforcement regimes, encompassing 
both  individual  enforcement  and  collective  enforcement  or  insolvency  proceedings.  The 
objective is to obtain a reliable picture of the delays and value recovery rates that banks face 
when borrowers default. These outcomes are heavily influenced by judicial capacity in the 
respective  Member  States.  Progress  on  the  benchmarking  exercise  was  presented  to  and 
discussed with Member States at meetings on 21 February and 20 June 2018, including the 
issue of lack of access to meaningful data. 

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 
country-specific  recommendations have been  adopted on this particular topic. Since 2013, 
country-specific recommendations on insolvency  issues have been made in different  years 
to  twelve  Member  States:  Bulgaria,  Croatia,  Cyprus,  Hungary,  Italy,  Latvia,  Malta, 
In  2018,  country-specific 
Portugal,  Romania,  Slovakia,  Slovenia  and  Spain. 
recommendations  on  insolvency  were  adopted  for  six  Member  States:  Bulgaria,  Cyprus, 
Italy,  Latvia,  Portugal  and  Slovenia.  In  the  current  European  Semester,  insolvency  issues 
will  also  be  analysed  in  the  country  reports  for  2019.  In  May  2019,  the  Commission  will 
issue its recommendations to the Council for country-specific recommendations. 

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

As part of its March NPL package, the Commission proposed a directive on credit servicers, 
credit purchasers and the recovery of collateral. One of the proposal’s objectives is to enable 
accelerated  extrajudicial  enforcement  of  collateral  where  creditors  and  borrowers  so  agree 
upfront  (but  not  for  consumer  loans).  The  proposal  is  currently  under  discussion  in  the 
European Parliament and the Council. The Commission is calling for these negotiations to 
be finalised before the end of the current legislature. 

4.  CONCLUSIONS 

As shown clearly in this Progress Report, risk reduction in the EU banking sector continues 
at  a  sustained  pace  and  significant  progress  is  being  made.  The  Progress  Report  therefore 
presents  an  important  contribution  to  the  European  Council  and  the  Euro  Summit  in 
inclusive  format  of  27  EU  Member  States  in  December,  which  will  discuss  the 

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reinforcement  of  the  European  Stability  Mechanism  and  the  completion  of  the  Banking 
Union, including further steps towards a European Deposit Insurance Scheme. Progress on 
these matters is now urgent and should be made in parallel to progress on risk reduction. 

As  shown  clearly  in  this  Progress  Report,  NPLs  continue  to  decline  in  the  Union.  This 
robust downward trend is very encouraging, but high NPL ratios remain a challenge in some 
Member States. 

The  Action  Plan  agreed  by  the  Council  in  July  2017  was  a  major  step  in  addressing  this 
challenge. Substantial progress has been made in its implementation. However, to be able to 
address NPLs in the most effective manner, the Action Plan should be fully implemented by 
all  actors.  This  is  crucial  to  addressing  the  challenge  of  high  NPLs,  both  in  terms  of 
reducing existing stocks to sustainable levels and preventing a renewed future accumulation. 

In  particular,  the  Commission  calls  on  Parliament  and  the  Council  to  swiftly  agree  the 
banking “risk reduction package”, as well as all elements of the comprehensive package of 
legislative measures proposed in  March 2018 to tackle NPLs. This  package, together with 
the significant progress in the reduction of NPLs, in cooperation with the European Banking 
Authority, the European Central Bank and the European Systemic Risk Board, is imperative 
to support the ongoing collective efforts to reduce remaining risk in the European banking 
sector and pave the way for, in particular, the completion of the Banking Union. 

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