The European Commission on March 14 tabled a package of measures to tackle non-performing loans in Europe. It is delivering on the Council’s Action Plan to address the high stock of these loans and prevent their possible future accumulation.

“As Europe and its economy regain strength, Europe must seize the momentum and accelerate the reduction of NPLs,” said Valdis Dombrovskis, Vice-President for Financial Stability, Financial Services and Capital Markets Union. “This is essential to further reduce risks in the European banking sector and strengthen its resilience. With fewer NPLs on their balance sheets, banks will be able to lend more to households and businesses. Our proposals build on the significant risk reduction already achieved in recent years, and must be an integral part of completing the Banking Union through risk reduction and risk sharing.”

The Commission’s proposed measures cover four key areas. The first is to ensure banks set aside funds to cover the risks associated with loans. Another is to encourage the development of secondary markets where banks can sell their non-performing loans to credit servicers and investors. A third is to facilitate debt recovery, as a complement to the insolvency and business restructuring proposal put forward in November 2016. Finally, to provide non-binding guidance – a blueprint – for establishing Asset Management Companies (AMCs) or other measures dealing with non-performing loans.

According to the Commission, risks in the EU banking sector have been significantly reduced in recent years. Banks under the supervision of the European Central Bank have raised €234bn of additional capital since 2014 and have much better liquidity buffers.