The ECB has published its second stocktake of national supervisory practices and legal frameworks related to Non-Performing Loans (NPLs) for 19 EU-countries.
As part of its supervisory priorities for 2017, the ECB remains intensively active with its efforts to solving Europe’s € 1 trillion Non-Performing Loans (NPLs) problem. Following the official publication of the final ECB guidance to banks on NPLs, the ECB has published on June 30 its second stocktake on NPLs. This comprehensive and 278-page stocktake analyses the situation across 19 EU-countries as per December 2016 in regards to national supervisory practices and legal frameworks related to NPLs. It identifies progress and remaining impediments in light of continued efforts for harmonization of the NPL frameworks in the banking union.
Figure 1: This figure illustrates the main findings of the ECB’s stocktake and represents an aggregation of the single results for each country assessment by national competent authorities and the ECB. The first line indicates the recent efforts taken by national regulators/supervisors regarding NPL-management at banks (i.e. supervisory regime and practices); the second line indicates legal impediments for reducing the stock of NPLs (i.e. the legal, judicial and extrajudicial framework); the third line indicates informational impediments (i.e. the information framework). For the first line, a full circle indicates a large number of recent regulatory/supervisory measures (compared to other EU-countries). For the second/third line, a full circle indicates a large number of legal/informational impediments that have been identified by the ECB and NCA’s.
While a country classification of high or low NPL by the ECB does not necessarily dictate the same classification for all banks in the country, this is a good indicator as to which country the ECB may monitor more closely. This is useful information for JSTs to support decision on supervisory actions for low/high-NPL banks from a European perspective. It also provides the NCAs with a comparison to their peers and a point or reference on how they position themselves in Europe. On an operational level, the report also includes a number of additional insights for banks that are in the process of establishing compliance of their NPL-framework with ECB’s NPL guidance. For example, the ECB states that
Clearly, full compliance with existing EBA-standards on NPE/forbearance appears to be essential for the ECB and banks should prepare the supervisory dialogue accordingly and also take into account the main findings of this stocktake when implementing the ECB’s NPL guidance. Moreover, having a good visibility on the country specific challenges (outside of the banks’ control) is very informative to banks in assessing how this may impact their implementation of the ECB guidance. The report is also a valuable source for banks with operations in multiple EU-countries.
For investors, the stocktake further increases the transparency about the European NPL market and refines expectations on future NPL-flows on country-level. The report also may reflect a common understanding of key stakeholders on existing impediments and contribute to the discussion around more comprehensive measures to solve Europe’s € 1 trillion NPL-problem.
For further details on this topic, please contact Eric Cloutier (Email:Eric.Cloutier@KPMG.co.uk) or David Nicolaus (Email:DNicolaus@kpmg.com) from KPMG’s ECB Office.