Changes to the new EU rules on non-performing loans following the impact of the COVID-19 pandemic on the economy

Changes to the new EU rules on non-performing loans following the impact of the COVID-19 pandemic on the economy

On 23 November 2020, Members of the European Parliament (MEPs): Raffaele Fitto and Carlo Fidanza of the European Conservatives and Reformists Group posed a written parliamentary question to the European Commission:

“The COVID-19 pandemic is a major shock to the global and European economy. This situation is leading to a series of economic shocks that are testament to a sharp drop in supply and demand, which is having substantial repercussions on GDP, with a serious risk of a rise in unemployment.

Against this background, the full entry into force in the EU, as of next January, of the new definition of default, with regard to non-performing loans, will create huge problems for millions of households and businesses unless it is reviewed and coordinated with the current complex situation of the economy. Indeed, the new legislation provides that any economic operator should be reported as a ‘bad payer’ (past due) after only 90 days of delay in paying back his or her loan and that, subsequently, the bank should initiate its own recovery and write-down measures in accordance with mandatory timetables (‘calendar provisioning’). This would also involve the need for further provisioning for banks, which would become even more cautious when granting credit.

In view of the above:

1. Does the Commission not agree, in the current economic climate, being undermined by the pandemic, that changes should be made to these rules – even on a temporary basis – to allow for greater credit flexibility?

2. Does it not agree – in particular with regard to the ‘up to 90 days past due’ rule – that this rule should be temporarily relaxed for the COVID-19 emergency, in order to avoid the negative social impact of such a tight timetable?”

On 28 January 2021, Financial services, financial stability and Capital Markets Union Commissioner Mairead McGuinness responded on behalf of the European Commission stating: “To mitigate the effects of the COVID-19 crisis and to help boost the post-pandemic recovery, the Commission has granted flexibility in its state aid and fiscal framework and has tabled proposals (swiftly adopted by co-legislators) for targeted adjustments to both the bank prudential framework and the securitisation rules for non-performing loans (NPLs) as well as for the NextGenerationEU initiative.

These measures support households and businesses and limit the potential rise of NPLs, which could otherwise depress credit growth and slow down the economic recovery. The Commission presented a targeted strategy to prevent a future build-up of NPLs on 16 December 2020 and, to ensure that the strategy can be delivered effectively, will establish an NPL advisory panel consisting of relevant industry stakeholders and consumer organisations.

The Commission welcomes banks’ initiatives to support citizens and businesses facing liquidity problems, for example by deferring payments where necessary. At the same time, banks need to continue to measure risks in an accurate, consistent and transparent manner to ensure trust in banks’ balance sheets; among others, this requires the continued use of the common NPL definition including the 90 days past criterion.

Similarly, to tackle NPLs proactively and to ensure that banks can continue to support their customers in this challenging period, the minimum loss coverage requirements are key.

It remains vital to closely monitor the impact of the COVID-19 crisis on banks and their customers. Following up on the ‘best practices’ for relief measures offered by the financial sector to consumers and businesses, the Commission therefore intends to organise a new stakeholder roundtable to take stock.”


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