COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK Fourth Progress Report on the reduction of non-performing loans and further risk reduction in the Banking Union
Date: 2019-06-12
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, EU banking union, action programme, bank, banking supervision, credit policy, financial risk, financial supervision, loan

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 12.6.2019 COM(2019) 278 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK Fourth Progress Report on the reduction of non-performing loans and further risk reduction in the Banking Union  
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE 
EUROPEAN CENTRAL BANK 

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

INTRODUCTION 

A fully-fledged Banking Union is essential to make sure that the Economic and Monetary 
Union  becomes  more  resilient  to  future  adverse  economic  shocks  by  enabling  more  risk 
sharing across borders. As outlined in the Communication “Deepening Europe’s Economic 
and Monetary Union: Taking stock four years after the Five Presidents’ Report”, completing 
the  Banking  Union  would  significantly  boost  confidence  in  the  banking  sector  and  more 
widely in the Economic and Monetary Union.  

In  order  to  enable  such  progress,  the  Union  and  its  Member  States  have  made  significant 
efforts  to  reduce  risks.  As  elaborated  in  this  progress  report,  this  has  borne  fruit.  This 
progress  report  shows  the  determined  action  that  has  been  taken  over  the  past  years  to 
address  the  challenge  of  non-performing  loans  (NPLs),  one  of  the  key  areas  for  reducing 
risk  in  the  European  banking  sector.  Due  to  various  reasons,  including  the  financial  crisis 
and  subsequent  recessions,  but  also  imprudent  lending  and  inadequate  creditworthiness 
assessment, many borrowers (people as well as companies), particularly in Member States 
that  faced  long  or  deep  recessions,  faced  an  inability  to  repay  their  loans  and  even 
bankruptcy. As a consequence, many banks were confronted with an accumulation of NPLs 
on their balance sheets. 

The  efforts  taken  over  the  past  years  and  the  fruit  they  have  borne  (and  will  continue  to 
bear)  have  their  roots  in  the  comprehensive  set  of  measures  outlined  in  the  ECOFIN 
Council’s “Action Plan to Tackle NPLs in Europe”1 This Action Plan is close to being fully 
implemented. In response to this Action Plan 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  stock-take  by  the 
Commission.  This  Communication  is  the  Commission’s  fourth  progress  report  in  this 
context.  It  is  therefore a contribution  to  the European Council in  June,  which will discuss 
the EU’s Strategic Agenda for 2019-2024, including the Economic and Monetary Union. 

Important strides have been made to reduce the existing stock of NPLs and to help prevent a 
renewed build-up in the future. While NPL stocks remain high in some Member States, it 
should  be  underlined  that  progress  is  being  made  in  addressing  them.  It  is  critical  that  all 
relevant stakeholders uphold these efforts in order to put the issue fully behind us over time. 

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

1 

 
 
 
                                                           
1.  THE BROADER CONTEXT: RISK REDUCTION IN THE UNION 

Over  the  last  decade,  the  Union  and  its  Member  States  have  made  substantial  efforts  to 
reduce risk in the banking sector.2 A wide range of measures introduced since the financial 
crisis: (1) have strengthened banks’ solvency, leverage and liquidity positions in significant 
and practical  ways;  (2)  have substantially improved  governance within and supervision of 
the  banking  sector;  and  (3)  have  significantly  enhanced  banks’  resolvability.  The  average 
Tier  1  capital  ratios3  of  euro  area  banks  directly  supervised  by  the  Single  Supervisory 
Mechanism have remained stable, amounting to 15.54% in Q4-2018, compared to 15.63% 
in  Q4-2017.4  These  stronger  capital  positions  are  also  reflected  in  higher  leverage  ratios. 
The average leverage ratio5 remains well over the requirement of 3%, standing at 5.28% in 
Q4-2018, compared to 5.41% in Q4-2017. Euro area banks also maintained their resilience 
to  liquidity  shocks,  as  the  liquidity  coverage  ratio  stands  high  at  145.61%  in  Q4-2018, 
compared to 143.56% in Q4-2017. This all testifies to the determined action taken to reduce 
risk across the euro area. 

As outlined in its 2017 Banking Union Communication6 and confirmed by its Second and 
Third Progress Report on the Reduction of NPLs7, the Commission has put forward further 
substantial  and  complementary  measures  to  reduce  risk  and  enhance  the  resilience  of  the 
European  banking  sector.  In  particular,  in  addition  to  the  specific  measures  on  NPLs 
referrred to in more detail below, some major stepping stones have been put in place over 
the past months that are part of the Commission’s efforts: 

  First, the European Parliament and the Council agreed upon the “banking package”, 
effectively  putting  in  place  a  more  robust  framework  to  regulate  and  supervise 
banks.8  This  marks  a  major  milestone  in  the  implementation  of  international 
standards,  and  the  completion  of  the  post-crisis  regulatory  agenda.  It  increases  the 
resilience of EU banks and improves their lending  capacity to  support the EU real 
economy; and 

  Second,  co-legislators  agreed  upon  the  Directive  on  preventive  restructuring 
frameworks, second chance and measures to increase the efficiency of restructuring, 
insolvency  and  discharge  procedures,  building  on  those  systems  that  already  work 

2   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.  

3   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. 

4  The data in this section derive from the ECB’s supervisory banking statistics. 
5  

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. 

6   COM(2017) 592 of 11 October 2017. 
7   COM(2018) 133 of 14 March 2018. 
8  

In  November  2016,  the  Commission  proposed  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.  See  http://europa.eu/rapid/press-release_IP-16-
3731_en.htm. 

2 

 
 
                                                           
well  in  Member  States.9  It  will  encourage  viable  businesses  to  restructure  early  so 
that  value  can  be  better  preserved  and  more  jobs  saved.  It  will  also  give  honest 
entrepreneurs a second chance to start a new business instead of being penalised for 
business  failure.  This  means  that  a  crucial  step  has  been  taken,  as  effective 
restructuring and insolvency rules are essential for preventing and reducing NPLs. 

The Commission welcomes the adoption of both of these proposals and calls for their timely 
implementation. 

2.  RECENT DEVELOPMENTS OF NON-PERFORMING LOANS 

NPL ratios continued to decline in the third quarter of 2018. The latest figures show that the 
gross  NPL  ratio  for  all  EU  banks  further  declined  to  3.3%  (Q3-2018),  down  by 
1.1 percentage points year-on-year (see Figure 1). This followed and confirmed the overall 
downward  trend  since  Q4-2014.  The  NPL  ratio  for  the  average  of  the  EU  is  thereby 
approaching  pre-crisis  levels  (see  Figure 2).  The  provisioning  ratio10  has  also  further 
increased and stood at 59.4% (Q3-2018). 

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

The  most  recent  quarterly  figures  show  that  NPL  ratios  continued  to  fall  in  nearly  all 
Member  States.  However,  the  situation  continues  to  differ  significantly  between  Member 
States (see Table 2). At the end of Q3-2018, banks in 14 Member States had rather low NPL 
ratios of below 3%, while some had still considerably higher ratios  – three Member States 
had  ratios  above  10%.11  Even  in  Member  States  with  relatively  high  NPL  ratios,  in  most 
cases there is encouraging and sustained progress due to a combination of policy actions and 
economic growth. 

9   COM/2016/0723 - 2016/0359 (COD). 
10   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). 

11   Meanwhile,  the  NPL  ratio  in  PT  is  expected  to  have  declined  below  10%  by  the  end  of  Q4-2018.  That  being 

said, the ECB is currently still in the process of validating these end-of-quarter data for all Member States. 

3 

3456Dec 14Sep 15Jun 16Mar 17Dec 17Sep 18Source: European Central BankEU total gross non-performing loans and advances, in % of total gross loans and advances, end-of-quarter values2345672008200920102011201220132014201520162017Source: World Bank -Worlddevelopment indicatorsEU total non-performing loans,in % of total gross loans, end-of-year values% 
 
 
                                                           
Table 2: Non-performing loans and provisions by Member State 12 

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

Determined action by banks and policymakers, particularly in Member States with relatively 
high  NPL  levels,  has  facilitated  this  reduction  in  NPLs  and  NPL  ratios.  Furthermore,  the 

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

*  
Sector-specific  data  for  the  EU,  for  Malta  (i.e.  Q3-2018)  and  for  Spain  (i.e.  Q3-2017)  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 
Q3-2018),  Hungary  and  the  EU.  In  these  cases,  figures  are  based  on  impairments  for  all  debt  instruments 
(i.e. loans and debt securities). 

4 

2018Q32017Q32018Q32017Q32018Q32017Q3Belgium2.22.73.03.954.650.1Bulgaria8.611.513.618.664.356.6Czech Republic2.12.64.05.065.254.2Denmark2.32.72.83.036.739.6Germany1.62.12.64.085.542.6Estonia1.72.02.22.741.042.9Ireland7.811.210.915.437.237.2Greece43.546.747.350.451.049.1Spain4.04.75.1-63.0-France2.83.23.94.565.360.3Croatia7.910.812.315.874.269.0Italy9.512.112.415.759.353.6Cyprus21.832.137.451.352.347.3Latvia6.06.08.19.039.244.1Lithuania2.93.73.74.935.734.4Luxembourg0.90.72.11.743.652.4Hungary6.19.68.114.178.167.1Malta2.93.4-5.751.844.7Netherlands1.92.22.62.935.137.2Austria2.83.83.85.366.863.8Poland6.56.67.17.268.057.9Portugal11.314.612.615.658.850.2Romania5.78.17.410.377.470.1Slovenia6.910.89.113.970.170.9Slovakia3.64.13.94.686.070.4Finland1.11.21.92.133.531.8Sweden1.21.21.51.435.634.5United Kingdom1.21.62.1-50.141.2European Union3.34.4--59.450.7Gross 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)  
 
 
 
                                                           
Commission  has  continued  to  work  constructively  with  Member  States  to  enable  case-
specific solutions for banks within the framework of EU State aid and banking rules, with a 
clear objective of limiting costs to taxpayers whilst making sure depositors remained fully 
protected at all times. This has enabled transactions that removed some EUR 112 billion of 
gross  NPLs  from  the  balance  sheets  of  banks  over  the  last  three  years  (including  around 
EUR  82  billion  in  Italy;  around  EUR  24  billion  in  Portugal;  around  EUR  6  billion  in 
Cyprus). 

Nevertheless, the Union and its Member States should not relent in their efforts. We should 
be aware of the potential effects of a downturn in the economic environment. The tackling 
of  NPLs  over  the  past  years  has  received  helpful  tailwinds  from  a  strong  economic 
conjuncture. Maintaining our collective efforts will allow for NPLs to  be addressed in  the 
most decisive manner possible, hence increasing our resilience to potential negative shocks 
in the future. 

The variation in NPL ratios across Member States reflects a persistent asymmetric impact of 
the financial crisis. Despite the overall encouraging progress, NPLs continue to pose a risk 
(even  though  diminishing)  to  the  viability  of  the  most  affected  banks  and  to  economic 
growth  and  financial  stability  in  some  Member  States.  By  further  reducing  NPLs,  more 
convergence among Member States could be achieved. The total volume of NPLs across the 
Union  now  stands  at  EUR 786  billion.13  Continued  attention  should  be  given  to  debt 
restructuring,  insolvency  and  debt  recovery  processes,  which  could  benefit  significantly 
from  further reforms  in  many cases. Efficient and predictable enforcement  and insolvency 
frameworks are key to help banks tackle the stock of NPLs and to help avoid their build-up 
in the future. Tackling this important issue in an effective way would provide a strong push 
in  support  of  further  NPL  reduction.  Legislative  harmonisation  in  this  area  is  challenging 
given the close links with various areas of the law which are in the national remit and with 
public policy choices reaching beyond the NPL issue. 

The sustained growth of secondary markets for NPLs is  an equally vital factor. Collective 
efforts  by  Member  States  and  EU  authorities  should  not  lose  sight  of  the  still  untapped 
potential  that  resides  in  a  well-functioning  secondary  market,  not  only  in  terms  of 
addressing the current stocks of NPLs, yet also in providing an outlet for future flows, hence 
crucially preventing a renewed build-up of NPLs on banks’ balance sheets. Relevant policy 
actions  (see  also  below)  should  continuously  be  geared  towards  further  developing  the 
secondary  market,  in  order  to  stimulate  and  sustain  the  present  momentum  in  several 
Member States. 

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  stock-take  from  the  Commission.  Table 3 
demonstrates  that  important  strides  have  been  made  towards  full  implementation  of  the 
Action Plan. 

13   Source: European Central Bank 

5 

 
 
                                                           
Table 3: Progress in implementing the Action Plan 

3.1.  SUFFICIENT LOAN LOSS COVERAGE BY BANKS FOR FUTURE NPLS 

As part of its package of proposals on NPLs put forward in March 2018, the Commission 
proposed  a  Regulation  amending  the  Capital  Requirements  Regulation  (‘CRR’)14, 
introducing  a  ‘statutory  prudential  backstop’  in  order  to  prevent  the  risk  of  under-
provisioning of future NPLs. The Regulation was adopted in April 201915. 

The Regulation requires banks to have sufficient loan loss coverage (i.e. common minimum 
coverage  levels)  for  newly  originated  loans  if  these  become  non-performing  exposures 
(NPEs).  In  case  a  bank  does  not  meet  the  applicable  minimum  coverage  level,  it  has  to 
deduct the shortfall from its own funds. 

Under  the  prudential  backstop  the  applicable  minimum  coverage  requirement  depends  on 
two main input variables: 

  whether part or all of an NPE is secured by eligible credit protection (as defined in 

the CRR); and 
the time period for which an exposure has been classified as non-performing. 

 

14   Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 

requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012. 

15   Regulation (EU) 2019/630 of the European Parliament and of the Council of 17 April 2019 amending Regulation 

(EU) No 575/2013 as regards minimum loss coverage for non-performing exposures. 

6 

No.Initiative of the Action PlanNo.Initiative of the Action Plan1Interpretation 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 
 
 
 
                                                           
The  coverage  requirements  for  banks  increase  progressively  up  to  100%,  after  3 years  for 
unsecured NPEs, and after 9 and 7 years for NPEs secured by immovable property and for 
NPEs  secured  by  other  eligible  credit  protection,  respectively.  This  approach  reflects  the 
increased risk resulting from “aged” NPEs even if they are secured: the longer NPEs remain 
on  banks’  balance  sheets,  the  less  banks  tend  to  succeed  in  recovering  their  money.  The 
objective of the measure is to incentivise pro-active and timely NPE management by banks. 
This is important as successful recoveries and viable forbearance measures usually happen 
during the first years after the classification of an exposure as non-performing. 

To ensure legal certainty and consistency in the prudential framework, the Regulation also 
introduces a common definition of ‘non-performing exposures’ (NPE), in line with the one 
already used for supervisory reporting purposes. 

Overall,  the  prudential  backstop  will  reduce  risks  to  financial  stability  arising  from  high 
levels of insufficiently covered NPEs, by preventing the build-up or increase of such NPEs 
with  spillover  potential  particularly  in  stressed  market  conditions.  Conversely,  it  will  also 
help  ensure  that  institutions  have  sufficient  loss  coverage  for  NPEs,  therefore  protecting 
their profitability, capital and funding costs in stressed times. In turn, this would contribute 
to the provision of stable, less pro-cyclical financing to households and businesses. 

3.2.  DIRECTIVE ON CREDIT SERVICERS, CREDIT PURCHASERS AND THE 

RECOVERY OF COLLATERAL 

The  proposed  Directive16  would  enable  banks  to  deal  in  a  more  efficient  way  with  loans 
once these become non-performing by improving conditions to either: (1) sell the credit to 
third parties on a secondary market; or (2) enforce the collateral used to secure the credit.  

One  of  the  central  objectives  of  the  proposal  is  to  foster  the  development  of  secondary 
markets where banks can sell NPLs both at national level and across Member States while 
maintaining  a  high  level  of  borrower  protection.  To  achieve  this  objective,  the  Directive 
introduces a harmonised and less restrictive regime for credit purchasers and servicers and 
removes  undue  impediments  to  cross-border  activity.  It  would  stimulate  the  further 
development of a well-functioning secondary market and would therefore greatly contribute 
to the reduction of the current stocks of NPLs. 

In order to  attain  the second central  objective, the Commission  proposed  a supplementary 
mechanism  for  the  accelerated  extrajudicial  recovery  of  collateral.  The  mechanism  would 
allow  banks  and  business  borrowers  (not  consumers)  to  agree  upfront  by  contract  on  a 
method  of  swift  recovery  of  collateral  by  the  creditor  in  case  of  the  business  borrower’s 
default. This mechanism would enhance secured creditors’ chances at value recovery and is 
designed to help to avoid the build-up of future NPLs.  

Both  avenues  for  banks17  to  deal  with  NPLs  facilitated  by  this  Directive  would  reinforce 
each  other.  Shortened  work-out  time  and  increased  recovery  values  raise  the  value  of  the 
NPLs as well as bid prices in possible NPL transactions. It would also be easier to price a 

16   COM/2018/0135 final - 2018/063 (COD). 
17   In  addition  to  banks,  the  aspects  of  the  proposal  applicable  to  credit  purchasers  and  servicers  would  also 

reinforce each other. 

7 

 
 
                                                           
collateralised  NPL  than  an  unsecured  one  in  secondary  markets  because  the  value  of  the 
collateral sets a minimum value of a NPL. Hence, this might also become a reason for credit 
purchasers to prefer NPLs with the accelerated extrajudicial collateral enforcement feature. 
This, in turn, would give additional incentives for credit institutions to use this feature at the 
origination of new loans. Moreover, the harmonisation achieved by accelerated extrajudicial 
collateral  enforcement would foster the emergence  of pan-European NPL investors, which 
would further improve market liquidity. 

While  the  Council  has  reached  a  partial  general  approach  regarding  secondary  markets, 
negotiations regarding the recovery of collateral are ongoing. Deliberations in the European 
Parliament  on  both  aspectsshould  be  taken  up  as  a  priority  once  the  new  Parliament  is 
settled  in.  Rapid  conclusion  of  this  file,  which  is  part  of  the  Council  Action  Plan,  is  of 
paramount  importance  to  contributing  to  EU  endeavours  to  successfully  tackle  the  NPL 
issue across Europe. Therefore, the Commission calls on the co-legislators to swiftly reach 
an agreement on this important proposal. 

3.3.  BENCHMARKING OF NATIONAL INSOLVENCY REGIMES 

insolvency  frameworks.  The  Commission  services  are 

The  management  of  NPLs  would  benefit  from  more  efficient  and  predictable  loan 
enforcement  and 
therefore 
undertaking  benchmarking  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 
in case of borrowers’ defaults. These outcomes are heavily dependent on judicial capacity in 
the respective Member States. Progress on the benchmarking exercise was presented to and 
discussed with Member States at various meetings, last on 13 February and 10 April 2019, 
including  the  issue  of  lack  of  access  to  meaningful  data.  The  Commission  services  in 
January 2019 launched a Call for Advice to the European Banking Authority to gather and 
analyse  data  from  banks  on  recovery  rates  and  speed  in  the  various  jurisdictions.  This 
should  be  underpinned  by  qualitative  data  on  cornerstone  characteristics  of  the  national 
enforcement and insolvency regimes. The Commission services requested Member States to 
provide qualitative data. 

3.4.  TECHNICAL BLUEPRINT FOR NATIONAL ASSET MANAGEMENT 

COMPANIES 

As  part  of  its  NPL  package,  the  Commission  provided  Member  States  with  an  Asset 
Management  Company  (AMC)  Blueprint.  This  document  gives  non-binding  and  practical 
guidance on how they can set up, if they so wish, national AMCs, in full compliance with 
EU legislation. It builds upon best practices from past experiences in Member States, to the 
extent applicable. The Blueprint elaborated upon some core principles, such as the relevant 
asset perimeter, the participation perimeter, considerations on the asset-size threshold, asset 
valuation  rules,  the  appropriate  capital  structure  and  the  governance  and  operations  of  the 
AMC. Evidently, there might be a need to adjust some of the suggestions of the Blueprint to 
country-specific circumstances as appropriate. 

The Commission  takes  note that, since the release of this Blueprint, no Member State has 
yet  initiated  the  set-up  of  an  AMC  at  national  level,  along  the  lines  described  in  the 
Blueprint. Nevertheless, informal discussions with some Member States indicated that such 
vehicles are being carefully considered. At any rate, it is imperative to bear in mind that an 

8 

 
 
AMC  can  only  be  successful  if  it  would  be  supported  by  (1) a  suitable  legal  and 
administrative  framework,  e.g.  facilitating  debt  enforcement  and  access  to  collateral;  and 
(2) sound  macrofinancial  policies  supporting  economic  recovery.  Furthermore,  it  is 
important  to  reiterate  that  the  Blueprint  clarifies  the  permissible  design  for  AMCs  with  a 
State aid  element  (which need to  be seen as  an exceptional  solution18), in  full  compliance 
with the EU legal framework, particularly the Bank Recovery and Resolution Directive, the 
Single Resolution Mechanism Regulation and State aid rules. 

3.5.  EUROPEAN NPL TRANSACTION PLATFORMS 

The  Council  Action  Plan  also  called  on  the  European  Central  Bank  (ECB),  the  European 
Banking  Authority  (EBA)  and  the  Commission  to  consider  setting  up  NPL  transaction 
platforms in order to stimulate the development of secondary markets. End November 2018, 
a staff working document was published on the potential set-up of such platforms, drafted 
jointly  with  staff  from  the  ECB  and  EBA.  It  outlines  how  such  a  vehicle  could  work  in 
practice. 

Union-wide NPL transaction platforms would be electronic marketplaces where holders of 
NPLs – banks and non-bank creditors – and interested investors can exchange information 
on  and  trade  in  NPL  portfolios.19  Such  platforms  have  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, they  could 
ease investors’ access to NPL markets and help banks increase sales of NPLs and thereby 
allow them to dispose of NPLs and clean up their balance sheets faster, and at higher sales 
prices than currently possible. Such platforms could help deal with current stocks of NPLs 
and provide a channel for the efficient disposal of future NPLs as they arise. In this sense, 
they could be an important, yet low-cost, infrastructure investment preventing a new build-
up of large stocks of NPLs in the future on the balance sheets of credit institutions. 

Following  up  on  the  staff  working  document,  the  Commission  held  a  roundtable  on 
15 January  with  stakeholders from industry, EBA and ECB in  order to  kick-start  work on 
achieving  Union-wide  NPL  platforms.  This  meeting  allowed  for  a  useful  exchange  of 
information  and  views  with,  and  between,  stakeholders.  In  order  to  advance  towards  such 
platforms,  private  stakeholders  should  agree  on  the  concrete  forms  for  developing  and 
issuing  industry  standards  for  European  NPL  platforms.  With  this  objective  in  mind,  the 
Commission,  together  with  the  ECB  and  the  EBA,  is  continuing  to  play  a  key  role  in 
facilitating  concrete  progress  towards  the  emergence  of  Union-wide  NPL  platforms.  As  a 
next step, the Commission will organise a second roundtable with stakeholders. 

18   AMCs can be private or (partly) publicly supported with no need for State aid, if the State can be considered to 
act as any other economic agent. The option of an AMC involving State aid should therefore not be seen as the 
default  solution.  In  this  respect,  the  Blueprint  also  describes  certain  alternative  impaired  asset  relief  measures 
that do not constitute State aid, such as market-conform State guarantees enabling the securitisation of NPLs. 
19   To  the  extent  that  the  platforms  process  personal  data,  they  will  have  to  fully  comply  with  the  General  Data 
Protection  Regulation  (GDPR).  In  particular,  the  design  and  functioning  of  the  platforms  would  need  to  be 
precised in detail in order to ensure full compliance with the GDPR. 

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4.  CONCLUSIONS 

As  shown  clearly  in  this  Progress  Report,  risk  reduction  in  the  EU  banking  sector  has 
maintained  the  strong  momentum,  built  up  over  the  past  years.  Risks  continue  to  be 
substantially and more evenly addressed across the Union, based on economic growth and 
relevant policy actions. This Progress Report therefore constitutes an important contribution 
to the European Council in June.  

As  elaborated  in  this  Progress  Report,  NPLs  in  the  Union  are  continuing  their  declining 
trend. The robustness of this downward move should encourage the Union and its Member 
States  to  keep  up  their  collective  endeavours  in  order  to  convincingly  address  remaining 
NPL stocks and prevent future accumulations thereof. Particularly in some Member States, 
NPL ratios remain a challenge and deserve continued attention. 

All  elements  of  the  Action  Plan  agreed  by  the  Council  in  July  2017  have  either  been 
accomplished  or  are  ongoing.  The  Commission  calls  on  all  stakeholders,  both  at  national 
and European level, to finalise the remaining ongoing actions without delay. 

In particular, the Commission calls on the European Parliament and the Council to swiftly 
agree  on  all  elements  of  the  comprehensive  package  of  legislative  measures  proposed  in 
March  2018  to  tackle  NPLs.  This  package,  together  with  the  marked  advances  in  the 
reduction of NPLs, in cooperation with the EBA, the ECB and the European Systemic Risk 
Board, is imperative to support the ongoing collective work to reduce remaining risks in the 
European banking sector and would facilitate, in particular, the completion of the Banking 
Union. 

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