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Is there a way out of non-performing loans in Europe?

At this event we looked at the issue of non-performing loans in Europe. The event also saw the launch of the latest issue of "European Economy – Banks

Speakers

Giorgio Barba Navaretti

Professor of Economics University of Milan and chief Editor European Economy - Banks, Regulation and the Real Sector,

Maria Demertzis

Macroeconomics, Monetary and Financial Stability, Political Economy

Interim Director

Giacomo Calzolari

Professor of Economics, University of Bologna, and Editor of European Economy-Bank Regulation and the Real Sector,

Martin Hellwig

Director (em.), Max Planck Institute for Research on Collective Goods,

Helen Louri

Head of the Department of Economics, Athens University of Economics and Business,

Video and audio recording

SUMMARY

The European and national regulatory authorities are concerned about the repercussions of the growing impaired assets and their consequences on financial stability in the near future. On the 6th of July, Bruegel, together with European Economy - Banks Regulation and the Real Sector and SWP-Berlin held an event on non-performing loans. This event presented the issue of European Economy – Banks, Regulation and the Real Sector (issue 2017.1) on the main exit strategies from non-performing loans on the table, with a particular focus on the set up of a state-backed Asset Management Companies (AMCs). The roadmap consists of enhanced supervision and reforms in the restructuring, insolvency and debt recovery frameworks as to increase recovery value from NPLs and reduce the length of work-out procedures. In the short-term, restructuring banks with high levels of impaired assets and developing secondary markets were defined as priorities.

While there is a large stock of NPLs to resolve, it is also important to stop the stocks from growing - for some countries, the current default rate is higher than the cure rate and the underlying factors have been pointed out as low growth, high unemployment, lack of disposable income or high interest rate margins. On the resolution side, the issues of asset composition - non-tradable assets may not present a lemons problem but a “patience problem”- and pricing were deemed of key importance. As it was discussed, real economic value is not defined if there is no market. The formation of secondary markets, on the other hand, has been hindered by asymmetries in legal regimes, governance or state-aid rules.

Despite the fact that the NPLs are concentrated in few countries, the possibility of spill-overs makes the case for the set-up of a European AMC, a project filled with open questions – the mutualisation of risks or even the decision of which banks should be allowed to transfer assets to AMC outside of the state-aid envelope illustrate what boils down to be a political willingness issue.

Event notes by  Inês Goncalves Raposo

 

Event Materials

Presentation by Giorgio Barba Navaretti and Giacomo Calzolari

Presentation by Maria Demertzis

Presentation by Aimilios Avgouleas