As Non-performing loans (NPLs) have dropped across Europe, the asset quality of financial institutions has improved. Banks are unquestionably better prepared for hardship than they were in the run-up to the financial crisis of 2008. Still, it may be best to prepare for the worst.
High NPL levels can be a heavy drag on investment, and hence on the economy. Following the launch of the European Commission’s action plan in 2017, NPL levels across Europe dropped significantly. Regulators and supervisors such as the European Banking Authority (EBA) and European Central Bank (ECB) contributed by imposing higher standards on banks’ credit risk management, with special attention to banks’ special asset management operations.