Following the establishment of an SSM NPL Taskforce, and much work on data collection and jurisdictional differences and approaches, in March this year, the ECB published the final Guidance to banks on non-performing loans. The Guidance sets the SSM’s expectations on NPL management – and prescribes that banks should implement ambitious yet realistic strategies to reduce their NPLs, using a very granular, portfolio-by-portfolio approach.
They must also set internal targets to reduce their NPLs. This does not necessarily mean portfolio sales. The hard yards of engagement with distressed borrowers, workout, restructuring and right-sizing debt must also be cornerstones of successful NPL reduction. Banks should also be taking action through their accounts to reflect the reality of the collectability of long dated NPLs.