Reducing banking non-performing loans has become a serious challenge for European authorities. Regulatory authorities (EBA), supervisory authorities (ECB), and political bodies (Ecofin) have all launched a set of measures to reduce existing non-performing loans on the balance sheets of European credit institutions and thereby boost EU growth.
Andrea Enria, Chairman of the EBA, quantified the amount of non-performing loans in the EU at almost one trillion euros at the beginning of the year. This figure is presented as a problem for the EU, although we cannot ignore the wide dispersion of non-performing loan levels among different EU countries and among entities, according to their varying business models and geographical diversification of their activities. This perception by the EBA is in line with the ECB’s concerns, which, for the second consecutive year, considers high levels of non-performing loans to be one of its main concerns.
This concern has led it to publish a guide, which is mandatory for credit institutions, for credit risk management and for conducting inspections of entities with higher levels of non-performing loans. Meanwhile, during the July Ecofin meeting, economy ministers agreed on an action plan to resolve this situation. The plan, which must be implemented before summer 2018, incorporates 14 measures to strengthen supervision through new regulatory requirements, promote the development of secondary markets for non-performing loans, and analyze insolvency frameworks in the EU, among others. Although any initiative that contributes to reducing the level of non-performing loans is welcome, it is worth paying attention to three aspects marginally addressed in the aforementioned ECB plan. First, it must be considered that non-performing loans are an inherent element of banking activity. Second, the imposition of new regulatory requirements could have unintended collateral effects that impact, for example, credit granting volumes. And third, other macroeconomic measures that could contribute to the reduction of non-performing loans are lacking.
Pedro Cadarso, Advisor
