The EC proposes to promote a secondary market for bad loans

Brussels, March 14 (EFE). – The European Commission (EC) proposed today to promote the creation of a secondary market to give exit between interested buyers to the bankrupt credits accumulated by the European Union bank so that the entities can eliminate of its scales those loans with a risk of default and very high default.
In a package with measures to reduce unproductive credits, Brussels also provides non-binding guidelines to member countries to create in their territory, if they wish, bad banks that absorb and concentrate those impaired assets.

After the financial crisis, these loans are at historically high levels in the Twenty-eight, despite the disparities between the community partners, and weigh the viability and credit capacity of banks, as well as the reputation of the entire European sector- website.

“As Europe and its economy regain strength, Europe must take advantage of the momentum and accelerate the reduction of non-performing loans, which is essential to further reduce the risks in the European banking sector and strengthen its resilience,” the statement said. Vice President of the EC for the Euro, Valdis Dombrovskis.

In that sense, he added that with fewer failed loans in their scales, “banks can give more loans to households and businesses.”

For the secondary market where banks can sell their bad loans to investors or credit management companies, the Commission’s initiative defines the activity of these companies, establishes common rules on authorization and supervision and imposes rules of conduct throughout the European Union.

Specifically, it specifies the entry conditions to the market for credit managers or administrators.

Normally, investors do not ask the bank to which they bought the unproductive loans that they continue to administer and collect the credits, but leave that activity in the hands of independent companies called managers or credit administrators, said Brussels.

According to the EC, the scarcity of these companies “discourages” buyers from entering the market, so establishing access conditions and rules of conduct for them is “crucial” if the secondary market is to be developed.

Buyers of failed loans should notify their authorities of their purchases, and investors from non-EU clubs buying consumer loans will have to resort to credit managers authorized by the EU.

The Executive’s proposal also includes the development of a community passport that allows investors to do business in all the Member States of the European Union.

As for the guidelines for creating bad banks in the countries, they cover aspects such as the principles for their establishment, governance, the operations they carry out or the assumptions in which they can receive public support.

The Commission also asks banks to hold reserve funds to cover the risks associated with credits issued in the future “that may become unproductive.”

Thus, Brussels proposes to introduce common minimum levels of coverage for newly created loans that deteriorate and if an entity does not have the minimum reserve amounts, deductions from its own funds will be applied.

In addition, it seeks to enable the accelerated extrajudicial execution of the guaranteed loans, so that in case of default by the borrower, the bank or another preferred creditor can recover the guarantee quickly without going to court.

However, these processes are limited to credits granted to companies and will be subject to safeguards, but they can never be used with consumer loans.

On Wednesday, the EU executive also published a new report on the number of impaired assets in the EU, according to which they fell to represent 4.4% of total loans during the third quarter of 2017, a year-on-year decrease of 1.1 percentage points and the lowest figure since the last three months of 2014.