The EU is making progress in addressing the problem of non-performing loans in its member states, with a positive trend of falling NPL ratios and growing coverage ratios during 2017. Since 2015, the share of NPLs in the EU has decreased by one third, equal to a reduction of €300 billion. In the latest ECB figures, as of mid-2017, the NPL ratio stands at 4.6 per cent (a percentage of banks’ total loans for all 28 EU countries). However, this figure is higher in the eurozone (5.4 per cent) and the total sum of NPLs in the EU is worth €950 billion. Italy was the country of most concern and it has reduced its ratio of non-performing loans by almost a quarter in the past 12 months, according to the European Commission.

Valdis Dombrovskis, Vice-President for Financial Stability, Financial Services and Capital Markets Union, emphasised that the problem is not resolved yet and that banks and EU member states must continue working to accelerate the positive trend. He commented: “Getting the level of NPLs down is essential to reducing risks in the banking sector and completing the Banking Union. Concerted efforts by banks, supervisors, Member States and Commission have already borne fruits. But we need to forge ahead to further bring down NPL levels. We want banks in all EU countries to regain their full capacity to lend to companies and households while preventing build-up of new bad loans.”

The report, which is the first progress report since EU finance ministers agreed an action plan on reducing NPLs, showed the following:

NPL ratios have been falling in nearly all Member States, although the situation differs significantly across Member States. The overall NPL ratio in the EU declined to 4.6% (Q2 2017), down by roughly one percentage point year-on-year, and by a third since Q4 2014.

• The data demonstrates that risk reduction is taking hold in the European banking system, and will support progress towards completing Banking Union, which should occur by risk reduction and risk sharing in parallel.
• The report also shows that the EU is on track with implementing the Council's Action Plan.
• NPLs are one of the key remaining legacy risks in Europe's banking system and reducing them is important for the smooth functioning of the Banking Union and the Capital Markets Union, and for the stability of the eurozone.