[author: Heidi Wardle]

On November 28, the European Commission published a communication setting out its third progress report (COM(2018) 766 final) in reducing non-performing loans (“NPLs“) and further risk reduction in the banking union.

There is an overall trend of improvement, with NPLs declining to an average of 3.4% which is approaching pre-crisis levels, due to action taken by member states and market players. However, there are high NPL ratios still in some member states.

The Commission has delivered all elements of the Council’s July 2017 NPLs action plan. However, it needs to be fully implemented by all actors in order to address the challenge of high NPLs, both in terms of reducing existing stocks to sustainable levels and preventing future accumulation. In particular, the Commission calls on the European Parliament and the Council of the EU to swiftly agree on the banking risk reduction package and all the elements of the legislative proposals to tackle NPLs.

A staff working document (SWD(2018) 472 final) was produced at the Council’s request and following collaboration with the European Central Bank (“ECB“) and the European Banking Association (“EBA“). The document, which is stated to not represent the views of the Commission, the ECB or the EBA, consider the set-up of an EU NPL electronic marketplace platform where banks and investors could trade NPLs to help stimulate development of the secondary market.