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Tackling non-performing loans in Europe

Author(s): Peter Grasmann, Markus Aspegren, Nicolas Willems

Date published: Oct 2019

SUERF Policy Note, Issue No 107
by Peter Grasmann, Markus Aspegren, and Nicolas Willems, European Commission

JEL-codes: G21, G28.
Keywords: Non-performing loans, banking union, European Commission, financial crisis, loan portfolio quality, bank capital, economic growth, financial regulation.

The issue of non-performing loans (NPLs) in Europe continues to be a focal point of attention for the banking system, both at national and European level. This note explores the origins and causes of the accumulation of NPLs in Europe, and explains why they have been and continue to be an important challenge that needs to be tackled. Substantial and encouraging progress in reducing NPLs in the EU banking sector has been made. Nevertheless, NPLs remain a significant challenge to the profitability and viability of EU banks, and economic growth at large. Attention also needs to be drawn to the clear and important EU dimension to reducing NPLs, as well as preventing their renewed build-up in the future, as the banking system of the EU and particularly of the euro area is highly interconnected. This is clearly underlined by the "Action Plan To Tackle Non-Performing Loans In Europe", which was endorsed by finance ministers in the ECOFIN Council in July 2017. The note also touches upon the link with the wider agenda of advancing risk reduction and risk sharing in the EU. Most importantly, the contribution elaborates upon the actions that the European Commission has taken to address NPLs, what their main objectives are and how they could affect the EU banking sector.

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SUERF Policy Note, Issue No 107SUERF Policy Note, Issue No 107

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