16 December 2020

Association of German Banks has reservations about EU action plan to reduce non-performing loans

  • Bad banks must not lead to a mutualisation of debt

The European Commission today unveiled its action plan to reduce non-performing loans (NPLs). Christian Ossig, Chief Executive of the Association of German Banks, commented as follows: “The European Commission is right to launch an initiative to counter a possible sharp increase in non-performing loans on banks’ balance sheets.” But it was questionable, he said, whether the planned measures would achieve the desired effect. “In particular, the bad banks now planned should not be allowed to lead to a mutualisation of debt,” Ossig stressed.

Given the coronavirus pandemic, it would have made sense to do more to strengthen banks’ room for manoeuvre on lending. This could have been accomplished, for example, by giving banks more flexibility concerning capital set aside to cover non-performing loans. The banking association believes the current rules are too rigid and inflexible.

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