On 28 November 2018, the European Commission published its third progress report on the reduction of non-performing loans (NPL) and further risk reduction in the Banking Union (the Report). The Report notes that NPL ratios continued to decline in the first half of 2018. This followed the overall trend of improvement over recent years. The latest figures show that the gross NPL ratio for all EU banks further declined to 3.4% in Q2 2018. At the end of Q2-2018, 12 Member States had low NPL ratios of below 3%, while some Member States had considerably higher ratios – three with ratios above 10%.
The improved figures are noted as partly being due to the fact that the environment in which banks can work out their NPLs has improved significantly since the financial crisis. As a result, banks have been able to build on restored stability in the financial system, partly with the aid of a better and clearer regulatory framework. This stability has enabled banks to enhance their internal capacity to manage and resolve NPLs.
Progress on the European Council’s Action Plan for addressing NPLs is set out on page 7 of the Report. Eight of the thirteen objectives have been accomplished, with completion on a further four imminent. Benchmarking of national loan enforcement and insolvency frameworks; and developing the focus on insolvency issues in the European Semester are noted as the two areas where ongoing work is still required.