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Part II Single Supervision and CRD IV, 8 The EU Framework Dealing with Non-Performing Exposures: Legal and Economic Analysis

Emilios Avgouleas

From: European Banking Union (2nd Edition)

Edited By: Danny Busch, Guido Ferrarini

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 18 April 2024

Bank resolution and insolvency — Repayment of credit — Debt — Eurozone — Monetary union

Non-performing loans (‘NPLs’) are bank loans that are subject to late repayment or are unlikely to be repaid by the borrower. The chapter refers to the debilitating NPL crisis between 2010 and 2017 which hit the EU, especially the eurozone banking sector. Today the highest levels of NPLs are observed in the Economic and Monetary Union periphery (Greece, Cyprus, Portugal). Once a bank asset is recognized as non-performing, a number of options are open to the bank from renegotiating the exposure to completely writing it off. Recovery will take place either by restructuring the debt contract or from the open market if the bank sells the asset or liquidates the requisite collateral. Loss is minimized where the legal system is functioning in a way that makes loan recovery and asset disposal procedures not very burdensome. High levels of NPLs can weigh on bank solvency, financial stability, and economic growth. The EU bodies and the European banking union authorities have set out ambitious goals for further reduction of NPLs on a pan-European basis through the EU Action Plan for NPLs.

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