IFRS 9 could be solution to EU’s NPL problem

Author: Olly Jackson | Published: 27 Nov 2018

In spite of popular opinion, Europe still has a long way to go to resolve its non-performing loan (NPLs) problem. While the volume of NPLs across the continent has decreased in recent years after the financial crisis, aided by recoveries in the economies of southern nations most affected by the debt crisis, this progress is very slow and is weighing down heavily on the balance sheets of the continent’s banks. Without a solution in place, the problem could destabilise eurozone growth that has made significant gains in the last six months. But recent regulation could provide a solution.

The European Central Bank (ECB) reinforced its NPL guidance for banks in October last year in parallel with the EU Council’s NPL Action Plan, which expects banks to cover the unsecured portion of new NPLs after two years and cover the secured portion after seven. Banks are expected to explain any deviation from the guidance...