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  • 25-01-2021 18:51

EU/Presidency: Portugal's finance minister calls for 'major breakthroughs' in EU rules on non-performing loans

EU/Presidency: Portugals finance minister calls for major breakthroughs in EU rules on non-performing loans

Brussels, Jan. 25, 2021 (Lusa) – Portugal's minister of finance, João Leão, on Monday called for 'major breakthroughs' in the European Union (EU) for new EU rules on bad performing loans, given the crisis of the Covid-19 pandemic and its impact on banks.

"At the moment, there is already a negotiating proposal on the European side and it is important to conclude the negotiations so that there is a secondary market for NPL [non-productive loans] and so that the financial sector can adjust in this time of crisis," Mr León said at a hearing by videoconference in the European Parliament's Economic and Monetary Affairs Committee in Brussels.

Participating on the occasion as chair of the Ecofin Council and to present the priorities of the Portuguese presidency of the Council of the EU, the minister of finance said it was necessary "to take into consideration a set of reforms that had to do with the NPL.

"It is important to closely monitor the financial sector and see how it is being affected by the crisis and how the moratoria, which have been applied on a massive scale to support the European economy, impact on the financial sector," Joao Leão stressed.

Before the meeting was interrupted by technical issues, he said it was "very important that the financial sector continues to support the economy in this crisis, contrary to the past crisis".

In mid-December last year, the European Commission presented a strategy to prevent a predictable accumulation of bad loans across the EU as a result of the crisis caused by the pandemic.

The strategy envisages a series of actions to ensure four main objectives, the first of which is to continue to develop secondary markets for high-risk assets, which, according to Brussels, will allow banks to remove bad loans from their balance sheets and thus continue to finance companies and households.

The Commission also calls for a reform of EU legislation on corporate insolvency and debt recovery, with a view to converging the various insolvency frameworks across the EU while maintaining high standards of consumer protection.

The third major objective of the strategy is to "support the creation and cooperation of national asset management companies at EU level" as "vehicles providing relief to distressed banks by allowing them to remove bad loans from their balance sheets" and thus redirecting their lending to viable businesses and households.

Finally, the fourth major objective is the possibility for countries to take precautionary measures, arguing in Brussels that "although the EU banking sector as a whole is in a much stronger position than after the financial crisis [in 2008], member states still have different policy responses".

The so-called NPLs are bank loans that are subject to late repayment or that are unlikely to be repaid by the borrower, both private and business.

As repayment is difficult in times of crisis, in some European countries - such as Portugal - moratoria have been created to postpone the payment of instalments, namely mortgage loans, in order to avoid an increase in the NPL.

Portugal is one of the EU and euro area countries with the highest NPL level, only surpassed by Greece and Cyprus.

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