the identification of the most appropriate strategy to reduce non - performing loans. to ensure effective implementation, we also expect banks to review their governance structures and operational arrangements against the benchmark laid down in the guidance. drawing from international best practice, the guidance prescribes that banks should establish dedicated npl workout units, separated from the loan granting functions. the main rationale for this important separation is the elimination of potential conflicts of interest and to ensure the presence of staff with dedicated expertise and experience in npl management. this separation of duties should encompass not only client relationship activities ( e. g. negotiation of forbearance solutions with clients ), but also the decision - making process. in this context, dedicated npl committees should also be established. given the existing heterogeneity across the european banking sector, setting generic quantitative targets for npl reduction in the strategies would have inevitably resulted in unrealistic targets for a number of banks. by contrast, if adapted to suit all situations, targets would have not been very ambitious. therefore, we explicitly decided not to set a single threshold for npl reduction. rather, taking into account the specificities in which banks operate, targets are required to be set using a portfolio - by - portfolio approach. the standard – outlined in the guidance – prescribes that banks must articulate their npl targets along three dimensions – ( i ) across time, ( ii ) by portfolio and, ( iii ) by implementation option chosen to drive the projected reduction. clearly defined quantitative targets in their npl strategy, approved by the management body, will ensure ‘ extend and pretend ’ situations will not persist. the targets will require banks to segment non - performing loans and effectively manage them towards likely resolution outcomes ( depending on borrower cooperation and business viability ). retail npls can remain stubbornly high, and commercial debt resolution strategies are likely to be complex and take significantly more time to devise and implement. therefore, a case - by - case assessment is required to 2 / 5 bis central bankers'speeches develop and agree bespoke sustainable solutions with distressed borrowers. allowing for bank - specific quantitative targets for npl reduction does not mean that ecb banking supervision will not implement consistent supervisory standards. the joint supervisory teams ( jsts ) will treat all banks in the same way when assessing both the degree of implementation and the ambitiousness of banks ’ strategies. furthermore, using peer analysis tools and techniques : ( i ) we will analyse all banks

assess performance and track kpis is also essential to monitor workout progress and is critical to the effective implementation of the npl strategies more generally. however, it is clear considerable gaps in it infrastructures also exist in some banks. in many cases data is simply not reliable or granular enough. for example, a key issue reported between 3 / 5 bis central bankers'speeches the bid / ask price is data. loan tapes need to include all the necessary information relating to the collateral and legal process to allow for cross - section and segmentation analysis. the standard we have set in the guidance, prescribes that all non - performing loan related data are securely stored in central it systems. where systems are not ‘ fit for purpose ’, banks will have to quickly put in place remediation plans to address these capacity gaps. as you know it infrastructure plans can take some time to implement and require investment. those plans will therefore also be subject to scrutiny by our joint supervisory teams. 4. coordinated response tackling europe ’ s non - performing loan problem, however goes beyond the supervisory domain. some reductions in non - performing loans have been noted across the euro area and a number of countries have taken proactive and coordinated prudential, judicial and other measures to tackle the issue. however, as shown by the stocktake report, in some member states a number of national practices and legal and judicial aspects still pose a considerable challenge to timely npl reduction. 5 the inefficiencies of judicial systems are considered by the majority of the countries surveyed, as an obstacle to the speedy resolution of non - performing loans, due to capacity constraints of the courts. other aspects that need to be addressed include ( i ) the lack of a modern legal framework for enabling timely out - of - court settlement, ( ii ) challenges related to both the corporate and the household insolvency system, and ( iii ) factors – such as the taxation regime or the accounting framework – that can also discourage npl resolution. the focus of the guidance is on workout. and working out npls can create a pipeline for future sales, where possible. however, the underdevelopment of secondary debt markets also impedes non - performing loan resolution in most of the countries surveyed. specific obstacles in the legal and regulatory framework appear to be the cause of such a market stagnation. this despite the fact that the majority of jurisdictions surveyed appear to have a framework favourable to transfer non - performing loans to third parties.