Tackling non-performing loans in the aftermath of the COVID-19 pandemic

EESC opinion: Tackling non-performing loans in the aftermath of the COVID-19 pandemic

Key points:


  • welcomes the presentation of the new Commission Action Plan (communication) on non-performing loans (NPLs), but regrets that it essentially lacks new proposals fit for COVID-19 times, leaving Europe to face an extraordinary time with rules written for ordinary times;
  • recommends tackling first and foremost the root causes of NPLs in order to prevent their build-up in the future, and also proposes a careful review and temporary adaptation of the definition of default, ensuring a "soft landing" for European households and businesses;
  • stresses that the most effective ways to avert the build-up of high volumes of would be to ensure constantly improving competitiveness, building solid social security systems, combating poverty, over-indebtedness and unemployment, guaranteeing adequate wages and implementing countercyclical economic policy measures in times of crises;
  • argues that "pre-COVID-19" NPLs should be dealt with in a very different manner to "post-COVID-19" (COVID-19-induced) NPLs;
  • suggests a careful, targeted and strictly temporary review of the EBA guidelines on the definition of default and recommends that the EBA Guidelines on credit moratoria stay in place as long as needed;
  • calls for relief measures for credit institutions to go hand in hand with governmental aid measures for borrowers who have only become distressed as a result of the pandemic;
  • with regards a cross-border NPL market, the Committee is concerned with plans to provide an EU-wide operating "passport" to debt collectors without proper supervision from both their "home" and "host" countries;
  • notes that the proposal on AECE may prove counterproductive if extra-judicial enforcement becomes a norm, a default option in the loan contract;
  • urges against fusing the NPL issue with an issue concerning the rescue of a particular group of distressed banks in some Member States;
  • calls for the option of selling NPLs to asset management companies to remain an exceptional case and for preference to be given to bilateral workout agreements between the credit institution and the borrower;
  • recommends that capital requirements – including the NPL backstop regulation – be kept firmly in place to ensure that banks have full capacity to withstand losses, however, temporary flexibility on the definition of default should be provided in order to mitigate the effects of the COVID-19 crisis.