Although banks have stepped up cost-cutting efforts in the wake of the pandemic, they need to push even harder for greater cost efficiency. Consolidation via mergers and acquisitions is another potential avenue for reducing overcapacity in the sector. The planned domestic mergers in some countries are an encouraging sign in this regard.
Furthermore, a comprehensive approach at national and EU level will be needed if distressed assets on bank balance sheets increase significantly. Market-based solutions should take a leading role, and actions at the European level to make secondary markets for NPLs more efficient and transparent would be desirable.