Non-performing loans – reducing the burden

Since European non-performing loans peaked at EUR 1.2 trillion in 2015, banks and regulators have worked hard to reduce the burden. However, the pandemic led to a rise in lending and a need to redouble efforts.

In 2017, European finance ministers agreed on an action plan to tackle non-performing loans in Europe. In December 2021, the EU’s NPL directive took effect. Today, the total NPL stock in Europe amounts to an estimated EUR 357 billion, corresponding to 1.8 percent of the entire European loan stock.

Reducing the NPL stock by 70 per cent in less than a decade might look promising. However, increased lending and governmental support during the pandemic has given rise to a new, awkward situation. In the past four years, lending has ballooned by 25 per cent while stage two loans have increased by more than 50 per cent. When gauging the development of NPLs, stage two loans are a good indicator of future levels.

The work that has been done since 2015 is great. But, following years of expansive monetary and fiscal policies, we might have a new challenge to tackle around the corner.
Anna Zabrodzka-Averianov, Intrum Senior Economist

Fears that European NPLs could reach EUR 1.4 trillion by the end of 2022 led the European Central Bank to devise a strategy to reduce volumes. The main goal was to develop the secondary market for non-performing loans, enabling banks to remove these assets from their balance sheets while also protecting those in problem debt.

Debt collection companies, including Intrum, play a key role in ensuring that outstanding financial obligations are paid on time and that banks are able to offload their balance sheets, ultimately safeguarding the financial ecosystem.

Download our latest Economy in Focus issue

The latest edition was published in September 2023 and takes a closer look at the economic phenomenon of NPLs – non performing loans – how they function and what the future development might look like.