Supervisory approach to stock of NPLs

The European Central Bank (ECB) announced further steps in its supervisory approach for addressing the stock of non-performing loans (NPLs) in the euro area. The approach follows the work that has already been undertaken in this area, namely the banks’ NPL reduction strategies, and the addendum for provisioning for new NPLs.
The Banking Supervision will further engage with each bank to define its supervisory expectations. The bank-specific supervisory expectations are based on a benchmarking of comparable banks and guided by individual banks’ current NPL ratio and main financial features. Main aim is to ensure continued progress to reduce legacy risks in the euro area and achieve the same coverage of the stock and flow of NPLs over the medium term.

In Q4 2017 a significant decreasing of the NPL ratio of significant institutions decreasing from 8 percent in 2014 to 4.9 percent can be observered, but the ECB states, that the current aggregate level of NPLs remains far too high compared to international standards and further efforts are necessary.

Read the full press release of ECB here.