On 8 November 2019, the European Banking Authority (EBA) published its second thematic report on non-performing loans (NPLs). The report is based on supervisory data of asset quality metrics, and provides an update on the progress made so far in addressing NPLs in Europe. It also takes stock of ongoing initiatives to tackle the NPL issue both at the EU level and at Member State level, identifies challenges to tackle the remaining NPL stock and indicates possible areas where further action is needed.
The report shows that the overall total of NPLs have decreased from over EUR 1.15 trillion in June 2015 to EUR 636 billion as of June 2019. The NPL ratio has declined to 3%, the lowest ratio since the EBA introduced a harmonised definition of NPLs across Europe. The average coverage ratio slightly increased from 43.6% to 44.9% over the same period.
However, recent quarters’ data suggest that the pace of reduction in NPLs has been slowing down in the past few quarters. The report has identified a number of reasons for this, with the most important being the fact that older legacy assets may be more difficult to resolve, also given the inefficiency of the legal framework and judicial processes of some European countries. In addition to this, a large part of the legacy assets are mortgage loans that banks tackle with caution due to social aspects. The report therefore asserts that additional effort is still needed to further reduce the NPLs in line with pre-crisis levels.