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BRUSSELS, 9 September 2021 - The European Savings and Retail
Banking Group (ESBG) replied yesterday to the European Commission’s targeted
consultation on improving transparency and efficiency in secondary markets for
Non-Performing Loans (NPLs).
With this consultation, the Commission wants to be informed
on the remaining obstacles to the proper functioning of secondary markets for
NPLs as well as actions that it could take to foster these markets by improving
the quantity, quality and comparability of NPL data. The consultation will also
enable the Commission to decide on whether EU coordinated action and/or policy
measures would be taken. This in order to limit market failures in terms of
information asymmetries, to increase market liquidity, to lower bid/ask spreads
and hence to enable more efficient NPL markets.
From ESBG’s perspective, the statement that an increase of
market transparency would have a positive impact on the efficiency of NPL
secondary markets is not necessarily true. The proposed data structure of the
revised NPL templates is in fact too wide, including a lot of non-essential
data. This would make it more time consuming for investors to conduct
operations on the NPLs market.
For those reasons, ESBG does not support the obligation to
provide data on NPLs, especially not for low NPL banks (with an NPL ratio lower
than 5%) who have no or little need to sell NPLs. It would make neither
economic sense (the costs will surpass the benefits), nor would it materially
support the build-up of an NPL trading market (as low NPL banks would not
contribute to it). Furthermore, it would be against any proportionality
consideration with regards to NPL size.
About the proposal for the establishment of an EU Data Hub
for NPLs, ESBG would like to highlight that the information disclosure via
Pillar 3 has been reinforced recently with heightened requirements for
high-level NPL entities. These entities already provide all the relevant
information they have, to get the best possible price. EBA NPL templates will
further increase standardisation of NPL data.
ESBG believes that the risks of leaks of information largely
outweighs the potential benefits of increased transparency. Even if data is
anonymised, names of distressed companies could be identified, which could have
very serious consequences, notably for firms that are still viable but whose
debt one bank wants to sell, while other banks may not have recognised it as a
Furthermore, there are many intangible parameters that have
an impact on the price and purchase/sales volumes that cannot be collected in a
Data Hub. Therefore, a partial analysis of the information provided could lead
to infer wrong and undesirable conclusions.
In this context, the obligation to provide data on NPLs would
not consider the role of all involved market participants and thus may have a
negative impact for some of them – like the templates provide huge
administrative burdens on the seller side but do not provide any incentive for
What must be pointed out is that the lack of a single NPL
market is evident, amongst other factors, due to the differences in national
insolvency laws and in jurisdictional systems. NPL markets work very
differently across EU countries and the creation of a pan-EU Data Hub would not
help NPL markets function any better.
ESBG members have a high level of operational readiness to
deal with the increase in NPLs, when (and if) the need emerges. Accordingly,
ESBG firmly believes that banks – or at least low level NPL banks – should
rather be given the discretion to decide on the use of the NPL data templates
even in their revised format in case of a sale. As sellers of NPLs, it is in
the interest of banks to disclose relevant information in line with the
characteristics of the product. Establishing a data hub with standardized data
for all market participants could even reduce the liquidity and depth of the
NPL secondary markets.
In conclusion, while understanding the rationality of aiming
at increasing market transparency, ESBG believes that a solution should be implemented
without bringing any additional complexity, investments and effort to all
involved, using existing regulatory and legal framework and IT infrastructure.