The EESC welcomes the Commission's new Action Plan on non-performing loans, but believes that it lacks new proposals fit for the age of COVID-19, leaving Europe to face an extraordinary time with rules written for ordinary times.

In an opinion adopted by the plenary assembly on 25 March, the EESC analysed the strategy for tackling non-performing loans (NPLs). The European Commission has set out its main concerns about specific sectors of the economy, such as banks, credit purchasers, credit servicers. However, the EESC has outlined the point of view of wider European society.

"The EESC cares a lot about the stability of the banking sector", said the opinion rapporteur, Kęstutis Kupšys. "But we also care about businesses that are indebted and cannot pay their debts anymore, as well as viable businesses that may need additional money from the banks. We also had vulnerable citizens in mind, those who are indebted and are about to become victims of 'vulture funds'. Finally, we had all taxpayers in mind: when, or rather if, public funds are allocated to buy portfolios of NPLs, they are the ones who pay to save banks from bad debts".

The EESC recommends tackling first and foremost the root causes of NPLs to prevent their build-up in the future. The best way is to ensure that competitiveness is constantly improved, focusing on business continuity and economic recovery, while building solid social security systems, combating poverty, over-indebtedness and unemployment, guaranteeing adequate wages and implementing countercyclical economic policy measures in times of crises.

Given the coronavirus' impact on EU economy, the volume of NPLs is expected to rise across the EU. In order to mitigate the negative consequences, the EESC calls for relief measures for credit institutions to go hand in hand with government aid measures for borrowers who have only become distressed as a result of the pandemic.

While the European Commission proposes further developing secondary markets for distressed assets, the EESC believes that the need for a pan-EU, cross-border NPL market is overstated. It is dangerous to provide an EU-wide operating "passport" to debt collectors without proper supervision from both their "home" and "host" countries. This move could only be justified if there is a counterbalancing set of measures helping protect distressed borrowers: an EU-wide consumer protection standard for debt collectors.

In addition, it is highly questionable whether the cross-border operations of credit purchasers provide tangible economic benefits for the economic system overall, and not just for banks, credit purchasers and credit servicers.

When it comes to selling NPLs to asset management companies (also colloquially referred to as "bad banks"), the EESC believes that this should remain the exception. Preference needs to be given to bilateral workout agreements between the credit institution and the borrower, focusing on business continuity and economic recovery.

According to Kęstutis Kupšys, the European Commission's document deals narrowly, in technocratic terms, with an issue that affects many sections of society "on the ground". "The message we want to convey is that the NPL issue should not be fused with issues related to preserving financial stability", he commented. "All in all, we see the proper way to deal with NPLs as being inside the banks, not just by dropping them on to the market when the loans become shaky. Debts should not become a commodity!" (na)