) broadly follows this pattern ( see chart 2 ). clearly, a sizeable part of the npl stock is no longer a risk to bank balance sheets. provisions, made under applicable accounting standards, amount to about 46 % of the stock of npls. the remaining value of npls is supported by expected future recoveries. collateral may be a major source of value in npls, covering a further 36 % of the total exposure, bringing total coverage to 82 % on average, for the euro area, broadly in line with the figures for the high - npl countries ( see chart 3 ). however, it is very important to bear in mind that access to that collateral is often lengthy and costly, eroding its net present value. 3 3 / 13 bis central bankers'speeches as i said earlier, one of the main reasons we are concerned about high npls, from a macroprudential perspective, is that they weigh on bank profitability. however, the resolution of npls should not be seen as the only challenge on the way towards restoring sustainable bank profitability and the banking sectors ’ ability to lend to the real economy. low returns on equity in the euro area are also the result of high costs or overbanking. only a few eu countries have successfully managed these challenges. sweden and other scandinavian countries are a notable example of a banking sector that achieves high profitability while not being burdened with legacy credit quality issues or excessive cost inefficiency. digitalisation, optimisation of human resources and branch networks, as well as reduction of overbanking also need to be addressed, drawing lessons from the swedish and other case studies ( see chart 4 ). 4 / 13 bis central bankers'speeches that being noted, the resolution of npls alone could lift up the return on equity in several european countries significantly. ecb staff carried out some simulations to demonstrate the potential for increases in bank profitability. in these simple and stylised settings, the assumption was made that non - performing loans would be replaced by new, sound exposures. interest income would be boosted as a result, as rates charged on new business would substitute for the lower earnings from non - performing loans. our simulations suggest that a resolution of npls could improve the aggregate return on equity of euro area banks by at least 1 percentage point, with some sectors gaining 3 or 5 percentage points. these estimates do not account for the benefits of lower funding cost or lower capital requirements that would

investor demand due to their intrinsic features and, in the case of some assets, banks may have an advantage over investors, making in - house workout of npl the preferred option, which in turn requires that they have sufficient capacity to restructure and cure troubled loans. comprehensive strategies are therefore needed to address the npl problem. these strategies should include common elements. for these elements a harmonised approach at the european level is of utmost importance, complemented with country - specific elements in each high - npl constituency in the euro area. generally speaking, npl resolution strategies can deploy a broad range of options available to banks and policymakers. these options are usually complementary. internal workout by the bank originally holding the impaired asset marks one end of the spectrum of options and should always feature highly in any broader resolution scheme. on the opposite end, direct sales to investors offer an opportunity to dispose of npls quickly. in between, there is a range of options such as asset protection schemes ( apss ), securitisation and synthetic securitisation and the creation of asset management companies ( amcs ), which in the past often involved state intervention ( see chart 10 ) 10 / 13 bis central bankers'speeches all of these options require a considerable push for structural reforms. to illustrate this point, let us consider an amc which is not accompanied by improvements to the debt enforcement framework. as the amc would be in an equally difficult legal position as the originating banks, the synergies it could reap would be very moderate. in turn, either the upfront impact of the amc transfers on the solvency of the banks, or the likelihood of the amc having to shoulder the losses would be unacceptably high. it is therefore essential that, as part of the comprehensive strategy, governments take a range of actions related to debt enforcement and reduction of information asymmetries. in many countries, the menu of options available to creditors in insolvency should be expanded, with an objective of promoting early restructuring and survival of viable companies. at the same time, the liquidation of non - viable companies and access to collateral should be facilitated. strong implementation of the necessary legal reforms is also crucial. this involves e. g. the provision of adequate capacity of the court system and well - functioning of out - of - court workout schemes. moving to information asymmetries, the quality, scope and accessibility of financial information should be improved, in particular with respect to corporate financial data