The European Banking Authority (EBA) has published a report on the dynamics and drivers of non-performing exposures in the EU banking sector. This report analyses the recent dynamics, cross‐country dispersion and possible drivers of the non‐performing exposures (NPE) in the EU banking sector. The report uses as its basis the harmonised EBA definitions of non‐performing loans (NPLs) and forbearance. The report covers a sample of 166 EU banks and the time‐period from September 2014 until March 2016. It should be noted that, due to a short assessment period, the analysis on the dynamics of NPLs is necessarily limited. The report is structured as follows:
- the first section analyses supervisory reporting data on forbearance and non‐performing loans, as well as coverage levels, at the highest level of consolidation and provides an overview of asset quality across jurisdictions;
- the second section expands this analysis to focus on the riskiness of the counterparties in different countries;
- the third section looks at the structural characteristics of local markets that can affect credit quality, provisioning policies and recovery of distressed assets. It is based on a survey carried out across EU national competent authorities and reviews the legal and regulatory specificities regarding NPLs and the possibility of establishing asset management companies; and
- the final section briefly reviews how some policy outcomes are being or should be pursued looking at supervisory, structural and market issues.
Overall, the report suggests that despite improvements NPLs remain high, with associated implications for the economy and banks’ profitability. Banks across the EU are improving their organisational set up to deal with the task of bad debt resolution, however, they are with limited options to transfer debt into bad banks, as this is only legally provided for in 15 of the 28 EU jurisdictions. Sales on secondary markets can be problematic as well and steps should be considered to improve their functioning, for example increasing transparency and encouraging homogeneity of contracts.
View EBA report on non-performing exposures in EU banking sector, 22 July 2016