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 Full text 
Wednesday, 13 March 2019 - Strasbourg Revised edition

Minimum loss coverage for non-performing exposures (debate)

  Valdis Dombrovskis, Vice-President of the Commission. – Madam President, first of all I would like to congratulate you for taking this file from the onset, in July last year, with a strong will and dedication, which helped us reach political agreement on the text you will vote on tomorrow.

We have been working intensively over the past years to reduce risks and to strengthen the resilience of the European banking sector. With a prudential backstop regulation, we are addressing one of the major risks to which European banks are still exposed: non-performing loans.

Non-performing loans had piled up in the banks’ balance sheets in the aftermath of the financial crisis and ensuing economic downturn. As we saw, elevated levels of NPLs, if not dealt with sufficiently quickly, weighed on banks’ liability and capacity to lend to the real economy.

We have certainly made substantial progress in reducing the high levels of NPLs. However, the ratio remains elevated when compared historically and to other regions, and accelerated GDP growth – a key driver behind the reduction in NPLs – cannot be taken for granted.

Preventing the future accumulation of NPLs is hence essential for preserving financial stability and supporting lending to create jobs and growth. To this end, the prudential backstop will put EU-wide brakes on any excessive future build-up of NPLs on banks’ balance sheets, without sufficient loss coverage. It will do so by setting a common minimum coverage level for future loans if they become non-performing across Member States and banks. It will serve as a necessary complement to existing supervisory tools that can only be applied on a case-by-case basis, depending on the individual circumstances of the bank.

The prudential backstop is therefore an important part of the Union’s effort to further reduce risks in the banking system, with a view to completing the banking union. However, our work to address NPLs is not complete yet. As you know, the backstop is part of the package of measures which also aim to improve the conditions for banks to deal with NPLs through more efficient enforcement mechanisms, as well as efficient competitive and transparent secondary markets.

I therefore encourage you to swiftly agree on the outstanding proposal on the NPL Directive, in particular to further develop secondary markets for non-performing loans.

Last updated: 26 June 2019Legal notice