DBRS Morningstar Illustrative Insights delivers interesting and easy-to read infographics commenting on the global economy, one at a time. Today a very interesting one has been published regarding Long-Term Non Performing Loans.
NPLs remain a focus for the European Commission as well as various European countries and banks. Both in terms of tackling the current issue amongst several countries, and in terms of ensuring a faster resolution of any potential future build-up of nonperforming loans. On 27 November, the European Commission put forward its position on a new mechanism for out-of-court enforcement on new loans to the European Parliament.
Accordgin DBRS and Morningstar this proposal is positive, but it realizes only a small marginal step towards helping to improve the handling of nonperforming loans
The proposal entails a common framework and mechanism for out-of-court settlements. The concept is to draft into new loan agreements a mechanism that would allow a creditor to take possession or sell on the collateral of the loan. These loan agreements would only be allowed for business loans where the borrower’s primary residence is not included in the collateral. They would only be for new loans once the proposal is adopted within national frameworks. The directive also aims to set some minimum requirements for adoption for countries to adopt for out-of-court settlements.
DBRS has also analyzed the securitisation scheme recently adopted in Greece (similar to Italian GACs), which allows the banks to offload a large number of their aged loans.
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