High-level policy workshop on the topic of non-performing loans

Seminar participants ©Antje Meichsner-Armbrust

As part of the Bundesbank-coordinated, EU-financed project “Strengthening the central bank capacities in the Western Balkans with a view to the integration to the European System of Central Banks”, a high-level policy workshop on the topic of non-performing loans was held in Frankfurt on 27 February 2020. Around 25 experts from the ESCB and the European Commission as well as managers in the fields of banking supervision and financial stability from the central banks and national competent authorities of the Western Balkans were invited to the event. The high-level workshop is the keynote of a series of training events, bilateral measures and internships to support the Western Balkans in the adoption, implementation and application of ESCB and EU best practices and standards.

Julian Reischle ©Antje Meichsner-Armbrust

In his opening speech, Director General Economic Education Julian Reischle first thanked the European Commission, which made this project possible. Following the project’s launch a year ago and the numerous training events on current central banking and banking supervision topics that have been held, focus is now shifting more towards bilateral measures on specific topics, internships and high-level policy workshops.

Andreas Papadopoulos ©Antje Meichsner-Armbrust

Andreas Papadopoulos, Advisor on Economic Governance at the European Commission/DG Neighbourhood and Enlargement, underlined the project’s significance for the European Commission with respect to its efforts to support the economic and institutional development of the Western Balkans. He reflected on the new proposal put forward by the European Commission on 5 February 2020 to drive forward the EU accession process, by making it more credible, with a stronger political steer, more dynamic and predictable.

Supervisors’ attention has been focused on the topic of non-performing loans for years. When Single Supervisory Mechanism came into force in November 2014, the volume of NPLs held by large banks in the euro area had mounted up to around €1 trillion. The NPL ratio stood at 8%. That was a significant burden for the European banking sector to bear and was therefore an issue of concern for the ECB and the national competent authorities. By end of September 2019, significant institutions' stock of NPLs had decreased to €543 billion. The NPL ratio declined to 3.4%. This reduction in NPL stock has accelerated over the past two years and has been particularly apparent in countries with high NPL ratios. In the Western Balkans, too, NPL ratios have decreased in recent years. In three of the six Western Balkan countries, the ratios have even fallen below pre-crisis levels. So the problem has clearly not solved itself. On the contrary, work on non-performing loans will remain high on supervisors’ agendas.

The high-level policy workshop shone a light on the topic from both a microprudential and macroprudential perspective and presented examples from countries that have implemented an NPL strategy. These examples also included contributions from the Western Balkans.

Text: Peter Spicka
Photos: Antje Meichsner-Armbrust