The impact of the NPL directive on the European debt collection sector.

TCM Group delegation @ FENCA Warsaw 2024

The FENCA Congress, held from September 18 to 20, 2024, in Warsaw, Poland, brought together the major players in the European debt collection sector. FENCA (Federation of European National Collection Associations) represents over 80% of the European debt collection market and serves as the voice for more than 85,000 employees (of which 60% are women). The organization is the leading advocate for responsible credit management.

The last five years have been turbulent for the sector. The pandemic, the war in Ukraine, the energy crisis, and rising interest rates, along with new legislation, have fundamentally changed the debt collection landscape. One of the most discussed topics at the congress was the impact and implementation of the Non-Performing Loans (NPL) directive, which has significant implications for the debt collection and credit management sector in Europe.

What is an NPL?

Non-performing loans (NPLs) are loans for which payments or interest are overdue by more than 90 days, or where full repayment is unlikely without invoking underlying collateral (assets provided by the borrower as security for the loan). This poses a risk to banks and the broader financial system.

The European Banking Authority (EBA) plays a central role in addressing NPLs through:

Guidelines and Supervision:

The EBA has developed guidelines and recommendations for banks and supervisors to improve the management of NPLs. This includes guidelines for credit management, preventing a buildup of NPLs, and strategies for their reduction.

Reporting Requirements:

The EBA mandates banks to regularly report on their NPL portfolios, providing supervisors with insight into the scale and development of the issue. This data helps to identify and address risks early.

Stress Tests:

The EBA conducts stress tests on banks, evaluating the impact of a high NPL ratio on the bank’s stability. This helps assess banks’ resilience to shocks related to poorly performing loans.

Support for the NPL Directive:

The EBA assists the European Commission in developing the regulatory framework for addressing NPLs, including the recent NPL directive. This focuses on facilitating the sale and management of NPLs, including stimulating the secondary loan market.

The combination of oversight, technical standards, and a focus on risk mitigation makes the EBA a key player in addressing NPLs within the European Union, contributing to financial stability.

What is the NPL Directive?

The original intention of the NPL Directive was to address the high levels of non-performing loans (NPLs) in the European banking system. This would create a more resilient and transparent banking system while supporting economic recovery and growth in the European Union.

The primary goals?

Strengthening Financial Stability:

By reducing the number of bad loans held by banks, the directive aimed to prevent systemic risks and ensure the overall stability of the European banking system.

Reducing NPL Levels:

The directive was designed to provide banks with a framework for better management, reduction, and resolution of NPLs, encouraging proactive measures to sell or manage bad loans.

Increasing Market Transparency:

The goal was to promote transparency in NPL transactions through the standardization of reporting requirements, making it easier for investors and debt managers to participate in NPL markets.

Stimulating Secondary Markets:

The directive promoted the development of secondary markets for NPLs, allowing banks to more easily sell non-performing loans to investors and specialized creditors, helping to clean up their balance sheets.

Supporting Economic Growth:

By removing problematic loans from banks’ balance sheets, the directive aimed to enable banks to refocus on lending to businesses and consumers, ultimately stimulating economic growth.

In theory, this approach was supposed to lead to a smoother collection of NPLs, but the reality has proven to be less straightforward.

Implementation in European Countries

During a panel discussion with several FENCA members, the implementation of the NPL Directive in various European countries was addressed. EU member states are required to enact legislation and regulations in line with the directive to improve the handling and management of NPLs.

However, the speed and manner of implementation vary greatly from country to country, posing challenges for credit servicers and collection agencies operating at the European level.

Greece:

The directive was implemented in December 2023. By June 2024, credit servicers are expected to be fully compliant.

Italy:

In the final phase of implementation, with a deadline set for February 2025. The sector is actively making the necessary adjustments.

Poland:

The directive was launched in June 2023 but still needs parliamentary approval. This is expected to occur within a few months. Thanks to the already well-regulated secondary market, the impact on the Polish debt collection sector is limited.

France:

The law has been in effect since late June 2024, but the licensing process is slow. So far, only six companies have received licenses.

Spain:

Spain is behind schedule. A bill was published in May 2024, but the law will not take effect until late 2025 (1.5 years after the deadline). This means that the debt collection sector in Spain will be regulated for the first time.

Czech Republic:

The law was adopted at the end of 2023, without addressing the objections raised. The implementation is strict, and no licenses have been granted yet.

Germany:

In Germany, the law has been in effect since December 2023, and all companies that applied for a license have received one.

And what is the situation in Belgium? The NPL Directive was supposed to be transposed into legislation by the end of December 2023. That deadline has not been met.

The Challenges of the NPL Directive

If you have any questions about collecting unpaid invoices or the NPL Directive, please do not hesitate to contact us at s.dereze@tcm.be or 0498 29 29 14.

27/09/2024

The impact of the NPL directive on the European debt collection sector.

TCM Group delegation @ FENCA Warsaw 2024

The FENCA Congress, held from September 18 to 20, 2024, in Warsaw, Poland, brought together the major players in the European debt collection sector. FENCA (Federation of European National Collection Associations) represents over 80% of the European debt collection market and serves as the voice for more than 85,000 employees (of which 60% are women). The organization is the leading advocate for responsible credit management.

The last five years have been turbulent for the sector. The pandemic, the war in Ukraine, the energy crisis, and rising interest rates, along with new legislation, have fundamentally changed the debt collection landscape. One of the most discussed topics at the congress was the impact and implementation of the Non-Performing Loans (NPL) directive, which has significant implications for the debt collection and credit management sector in Europe.

What is an NPL?

Non-performing loans (NPLs) are loans for which payments or interest are overdue by more than 90 days, or where full repayment is unlikely without invoking underlying collateral (assets provided by the borrower as security for the loan). This poses a risk to banks and the broader financial system.

The European Banking Authority (EBA) plays a central role in addressing NPLs through:

Guidelines and Supervision:

The EBA has developed guidelines and recommendations for banks and supervisors to improve the management of NPLs. This includes guidelines for credit management, preventing a buildup of NPLs, and strategies for their reduction.

Reporting Requirements:

The EBA mandates banks to regularly report on their NPL portfolios, providing supervisors with insight into the scale and development of the issue. This data helps to identify and address risks early.

Stress Tests:

The EBA conducts stress tests on banks, evaluating the impact of a high NPL ratio on the bank’s stability. This helps assess banks’ resilience to shocks related to poorly performing loans.

Support for the NPL Directive:

The EBA assists the European Commission in developing the regulatory framework for addressing NPLs, including the recent NPL directive. This focuses on facilitating the sale and management of NPLs, including stimulating the secondary loan market.

The combination of oversight, technical standards, and a focus on risk mitigation makes the EBA a key player in addressing NPLs within the European Union, contributing to financial stability.

What is the NPL Directive?

The original intention of the NPL Directive was to address the high levels of non-performing loans (NPLs) in the European banking system. This would create a more resilient and transparent banking system while supporting economic recovery and growth in the European Union.

The primary goals?

Strengthening Financial Stability:

By reducing the number of bad loans held by banks, the directive aimed to prevent systemic risks and ensure the overall stability of the European banking system.

Reducing NPL Levels:

The directive was designed to provide banks with a framework for better management, reduction, and resolution of NPLs, encouraging proactive measures to sell or manage bad loans.

Increasing Market Transparency:

The goal was to promote transparency in NPL transactions through the standardization of reporting requirements, making it easier for investors and debt managers to participate in NPL markets.

Stimulating Secondary Markets:

The directive promoted the development of secondary markets for NPLs, allowing banks to more easily sell non-performing loans to investors and specialized creditors, helping to clean up their balance sheets.

Supporting Economic Growth:

By removing problematic loans from banks’ balance sheets, the directive aimed to enable banks to refocus on lending to businesses and consumers, ultimately stimulating economic growth.

In theory, this approach was supposed to lead to a smoother collection of NPLs, but the reality has proven to be less straightforward.

Implementation in European Countries

During a panel discussion with several FENCA members, the implementation of the NPL Directive in various European countries was addressed. EU member states are required to enact legislation and regulations in line with the directive to improve the handling and management of NPLs.

However, the speed and manner of implementation vary greatly from country to country, posing challenges for credit servicers and collection agencies operating at the European level.

Greece:

The directive was implemented in December 2023. By June 2024, credit servicers are expected to be fully compliant.

Italy:

In the final phase of implementation, with a deadline set for February 2025. The sector is actively making the necessary adjustments.

Poland:

The directive was launched in June 2023 but still needs parliamentary approval. This is expected to occur within a few months. Thanks to the already well-regulated secondary market, the impact on the Polish debt collection sector is limited.

France:

The law has been in effect since late June 2024, but the licensing process is slow. So far, only six companies have received licenses.

Spain:

Spain is behind schedule. A bill was published in May 2024, but the law will not take effect until late 2025 (1.5 years after the deadline). This means that the debt collection sector in Spain will be regulated for the first time.

Czech Republic:

The law was adopted at the end of 2023, without addressing the objections raised. The implementation is strict, and no licenses have been granted yet.

Germany:

In Germany, the law has been in effect since December 2023, and all companies that applied for a license have received one.

And what is the situation in Belgium? The NPL Directive was supposed to be transposed into legislation by the end of December 2023. That deadline has not been met.

The Challenges of the NPL Directive

If you have any questions about collecting unpaid invoices or the NPL Directive, please do not hesitate to contact us at s.dereze@tcm.be or 0498 29 29 14.

27/09/2024