Our summary and comments on the European Commission’s latest action plan to tackle non-performing loans in the EU.
On December 16, the European Commission published their latest action plan on tackling non-performing loans in the EU.¹ The action plan follows the NPL Roundtable in September, where the Commission presented several initiatives including a new data hub for NPL transactions.² The Commission today presented a strategy to prevent a future built up of NPL as a result of the economic crisis caused by Covid-19. The volume of NPL is expected to increase sharply although the timing and magnitude of the increase is still uncertain depending on the speed of the recovery.³
The Commission proposed a series actions with four main goals:
- Further developing the secondary market for distressed assets,
- Reform the EU’s corporate insolvency and debt recovery legislation,
- Support the establishment and cooperation of national asset management companies, and
- Precautionary public support measures to ensure the continued funding of the real economy.
We highlight three of the proposed action items to further develop the secondary markets for distressed assets on which we had commented before at the NPL Roundtable.²
- The Commission proposes to expand the use of the EBA NPL data template which could become mandatory after a further consultation with market participants in early 2021. The Commission acknowledges that the template requires further development and that data providers should have a no-data option for non-essential data fields.
- The Commission provides additional detail about the idea of a central data hub for NPL transactions to increase market transparency. Such a hub would act as a repository for granular data similar to the recently introduced repositories for securitisation transactions.⁴ The details of the data hub will be subject to a consultation and one option could be the use of the European DataWarehouse, a securitisation repository. The hub would collect and store standardized data with a focus on post-trade information such as transaction details and sale prices and could include post-trade performance data similar to the performance disclosures in securitisations.
- The Commission proposes to develop best execution guidance for NPL sales processes by the third quarter of 2021. The non-mandatory guidance might include for instance the need to advertise a transaction widely, a common set of due diligence materials, accepting bids electronically, the use of EBA NPL data templates, and guidance on the use of NPL transaction platforms in the sales process. The guidance could help sellers decide whether to use NPL transaction platforms and therefore provide for an indirect push towards the use of such platforms.
We welcome the transparency initiative of the Commission and the push towards the use of transaction platforms as it will help buyers and sellers to efficiently value and complete transactions. We share the Commission’s view that there are several existing data sets like the AnaCredit database of the ECB or bank financial and regulatory disclosures to the EBA that could swiftly be mobilised to provide additional information about loan recoveries relevant to the market for NPLs. Such regulatory data may be disclosed on an aggregated basis only, but the benefit to the market could be reaped quickly. Collecting loan-level transaction data will be most useful for the market, however, the implementation will take years and data of closed transactions, at least initially, will not be representative for other transactions and jurisdictions. In contrast, AnaCredit and EBA data cover the stock of European bank loans comprehensively. There are other sources of detailed NPL data ready to be used. Member banks of Global Credit Data, a data hub for the pooling of loan recovery data, can use of the collected recovery cash flows for benchmarking their NPL valuation and sales activities. Much will depend on a swift implementation if the action items proposed by the Commission were to help tackle the wave of new NPL expected over the next few years.
- The action plan from the European Commission can be found here
- Our earlier comments on the NPL Roundtable from the Commission can be found here
About NPL Markets
NPL Markets is an innovative loan transaction platform based upon four pillars: data preparation, analytics and valuation, marketplace execution, and reporting. NPL Markets helps sellers of NPL to prepare and standardise transaction data and select the optimal transaction portfolio based on balance sheet impact. Our platform supports the entire transaction data lifecycle and assists sellers and buyers with loan valuation, deal structuring, securitisation cash flows and reporting tools. Our data mapping tool has been used for over 250 NPL portfolios to transform to the EBA NPL transactions template and the ESMA template for securitisation disclosures.