Why are NPLs an issue for banks and regulators?
The latest news on NPLs in Europe
The European banking sector continues to suffer from a large legacy overhang of Non-Performing Loans (NPLs). NPLs represent a multi-faceted threat to the ECB’s supervisory priorities for three reasons:
- NPLs tie up bank capital without providing return
- They reduce bank profitability and threaten business models
- They erode a bank's liquidity.
All of this contributes to a weaker banking sector, with less capacity to lend to the European economy. This risk has made reducing NPLs a hot-topic for a broad range of politicians, policymakers and investors.
Regulators have put considerable pressure on high NPL banks to produce robust and detailed NPL strategies and demonstrate their ability to deliver operationally on those plans. This oversight is having a considerable impact on banks as they work towards meeting the requirements of the regulator.