The European Commission has launched a consultation on the development of secondary markets for non-performing loans and distressed assets. All interested parties have been invited to respond with their views by 20 October 2017.

"Non-performing loans"

"Non-performing loans" (NPLs) are loans where contractual terms are in default - generally by reason of a failure by the borrower to make one or more scheduled payments. The default renders the loan distressed, both as a liability of the borrower and as an asset on the lender's own balance sheet. The situation is unsustainable for both parties.

In recent years there has been significant growth in the secondary market for NPLs, that is, the sale of portfolios of distressed loans by the original funders to new entrants. One reason for the development of this market is the pressure on Banks across Europe to comply with national and international capital requirements. The higher proportion of capital which requires to be held against NPLs can inhibit the Bank's recovery and/or growth (as the case may be) and may jeopardise a Bank's ability to meet the relevant regulatory requirements which, as a worst case scenario, may affect the solvency, or perceived viability, of the Bank itself.

A "priority" issue

The European Commission has identified the high level of NPLs held by some European Banks as an issue, the resolution of which is a top priority. The Commission's view is that if Banks were better able to sell on NPLs from their balance sheets, those Banks would be better resourced to evaluate and write new business, with purchasers then better placed to specialise in debt collection, collateral administration and credit restructuring. The Commission also suggests that a better functioning secondary market for NPLs would attract a larger pool of purchasers, "potentially leading to transaction prices that better reflect the value of the assets".

The consultation seeks to identify practical problems and restrictions hampering, and the measures through which the Commission can support, the development of secondary markets for NPLs, as well as options for protecting secured creditors from borrowers' default.


The consultation is open for responses until 20 October 2017. The consultation paper and details of how to respond can be found here: Consultation Resources