Implementation Of Prudential Backstop – Amendments To The CRR As Regards Minimum Loss Coverage For NPEs

In 2019 the non-performing loan (NPL) ratio of the EU banking sector declined to 3%. At the same time, both EU legislators and the European Central Bank (ECB) have forged ahead with their determination to address the NPL issue effectively and have implemented and aligned prudential and supervisory backstops for NPLs.

According to the European Banking Authority (EBA) report on NPLs published on November 8 2019¹ (the EBA Report), the quality of the EU banking sector has significantly improved over the last four years. Total NPLs decreased from over €1.15tn in June 2015 (6% as a percentage of total loans) to €636bn as of June 2019. The NPL ratio declined to 3%, the lowest ratio since the EBA introduced a harmonised definition of NPLs across European countries. The average coverage ratio slightly increased from 43.6% to 44.9% over the same period.