Loans are defined as non-performing when the borrower is unable to make scheduled payments for more than 90 days past the due date or when the loan is assessed as unlikely to be repaid.

Since the 2008 financial crisis European authorities have been working on reducing the high volume of NPLs in balance sheets of banks within the European Union. In fact, the large quantities of such NPLs in various countries do not only affect the vitality and profitability of credit institutions concerned but also influence strongly the overall economy and financial system of the European Union.

Accordingly a proposal of a directive on the NPL sector was issued in 2018 seeking to prevent the increase in NPLs by introducing two main instruments:

The first element was first supposed to consist of a distinct common accelerated extrajudicial enforcement procedure (AECE) facilitating the security recovery of collateralized corporate loans by a more flexible out-of-court enforcement mechanism. The second principal tool would involve the development of secondary markets for NPLs as the current legislative framework diverges from jurisdiction to jurisdiction. Consequently, the removal of national entry barriers should make the market more competitive through increasing demand, having a positive impact also on banks' sale proceeds.

Various institutions have provided feedback during the assessment term and it emanates from observations given that (i) the reporting requirements were considered to a certain extent as too burdensome, and (ii) technical standards for NPL data shall not be duplicated from what is already required. In addition, even though the AECE procedure was welcomed by market participants, they had various suggestions for improvement.

Due to a large number of diverging legal interests, the progress on the implementation of this directive proposal has been so far rather medium. A council proposal was issued in March of this year, removing the common accelerated extrajudicial enforcement procedure (AECE) from the proposal subject to treatment by the European Parliament. Further developments are expected in autumn of this year.

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