Insights into international NPL markets and regulations | Directive (EU) 2021/2167 | Colombia

In Colombia, a non-performing loan (NPL) and a loan subject to regulatory relief measures are intensely and effectively supervised by the Financial Superintendence of Colombia (SFC) through a wide variety of strategies and tools. Moreover, Colombian banks have extensive and experienced resources dedicated to NPL management. Banks favour internally driven loan restructurings and workouts for resolving NPLs, minimising court-driven and legally enforced solutions, given their traditional prolonged delays and inefficiencies in the judicial debt recovery process.

According to the report from the SFC, by the end of 2024 NPL transactions were continuing at a strong pace, despite a slight slowdown in mid-2023. This deceleration was primarily linked to the base effect of a lower rate of defaults. In annual terms, the NPL portfolio expanded by 5% as of November 2024, maintaining the growth recorded at the end of 2023.

The SFC report highlights that by the end of 2024, the total balance of loans overdue by more than 30 days amounted to COP 35.29 billion, marking a 3.40% increase in annual terms. This figure compares to COP 34.13 billion in 2023, COP 24.61 billion in 2022, and COP 22.7 billion at the end of 2021.

The NPL ratio, which measures non-performing loans as a percentage of total loans, stood at 5% for the overall loan portfolio in 2024. Among different loan types, microloans had the highest NPL ratio at 8.9%, followed by consumer loans at 7.3%, commercial loans at 3.9%, and residential loans at 3.5%. The provisional trends indicated improved financial stability for borrowers after the initial economic shock caused by the pandemic.

The rules on loan classification and impairments are covered by Chapter XXXI of the Basic Circular on Finance and Accounting (Circular Básica Contable y Financiera, CBCF), which also defines the need for a Credit Risk Management Framework (Sistema Integral de Administration de Riesgo, SIAR) at each Credit Institution (CI).

For each CI, the SIAR covers policies for every step of the credit process, and for loan classification, migration, and provisioning, and the CBCF specifically requires that the Board of Directors ensures the CI has the appropriate human, physical and technological resources needed for enforcing their SIAR. As outlined in the Detailed Assessment Report of the Basel Core Principles for Effective Banking Supervision, the regulations covering the requirements of the SIAR and the governance of the SIAR are appropriately dealt with.

Directive (EU) 2021/2167 of the European Parliament and of the Council of November 24, 2021, on credit servicers and credit purchasers, amending Directives 2008/48/EC and 2014/17/EU (the NPL Directive or Directive) came into force in 2021. It establishes a European Union regulatory framework for purchasers and servicers of non-performing loans granted by credit institutions in the member states of the European Union.

1. Relevant Definitions

A credit servicer is understood as a legal person that, in the course of its business, manages and enforces the rights and obligations related to a creditor’s rights under a non-performing credit agreement, or the non-performing credit agreement itself, on behalf of a credit purchaser, and carries out at least one or more of the following credit servicing activities (No. 8, Art. 3):

1. collecting or recovering from the borrower, in accordance with national law, any payments due related to a creditor’s rights under a credit agreement or to the credit agreement.
2. renegotiating with the borrower, in accordance with national law, any terms and conditions related to a creditor’s rights under a credit agreement, or of the credit agreement, in line with the instructions given by the credit purchaser, where the credit servicer is not a credit intermediary as defined in Article 3, point (f), of Directive 2008/48/EC or in Article 4, point (5), of Directive 2014/17/EU;
3. administering any complaints relating to a creditor’s rights under a credit agreement or to the credit agreement; and
4. informing the borrower of any changes in interest rates or charges or of any payments due related to a creditor’s rights under a credit agreement or to the credit agreement (Num. 9 Art. 9).

A credit purchaser is defined as any natural or legal person, other than a credit institution, that purchases a creditor’s rights under a non-performing credit agreement, or the non-performing credit agreement, in the course of its trade, business, or profession, in accordance with applicable Union and national law (No. 6, Art. 3).

The NPL Directive establishes, among other provisions, that the competent regulatory authorities of each member state must establish and maintain lists or registers that include all credit servicers authorised to offer their services within the member state (Articles 9.1 and 13.7).

2. Subject matter and scope of the NPL Directive

This Directive establishes a common framework and sets requirements for credit servicers managing a creditor’s rights under a non-performing credit agreement—or the agreement—issued by a credit institution within the EU. It also applies to credit purchasers acquiring such creditor rights or the non-performing credit agreement from a credit institution established in the EU (Art. 1).

The Directive applies to:

1. credit servicers acting on behalf of a credit purchaser in respect of a creditor’s rights under a non-performing credit agreement, or of the non-performing credit agreement, issued by a credit institution established in the Union in accordance with applicable Union and national law.
2.  credit purchasers of a creditor’s rights under a non-performing credit agreement, or of the non-performing credit agreement, issued by a credit institution established in the Union in accordance with applicable Union and national law (Art. 2).

3. Key provisions of the NPL Directive

The Directive covers several fundamental aspects of the regulation of NPL management from members states of the EU:

1. Authorisation and Supervision of Credit Servicers (Articles 4-9): Credit servicers must obtain authorisation from their home member state before providing services. The authorisation process includes strict governance, transparency, and consumer protection requirements.
2. Cross-Border Operations (Articles 13-14): A credit servicer authorised in one EU member state can operate in another member state without additional authorisation, subject to notification requirements.
3. Obligations of Credit Purchasers (Articles 15-20): The Directive imposes due diligence requirements on credit purchasers to ensure fair treatment of borrowers and compliance with EU consumer protection laws.
4. Consumer Protection and Transparency (Article 10): Credit servicers and purchasers must communicate clearly with CI, providing them with all relevant information about the transfer of their loans.
5. Supervision and Sanctions (Articles 21-23): Competent authorities have enforcement powers, including the ability to revoke authorisations, impose fines, and supervise credit servicers' activities.
6. Cooperation Between Authorities (Article 26): The Directive promotes cooperation between member states' authorities to ensure effective supervision and enforcement.

3. Applicability of the NPL Directive in Colombia

The NPLs Directive applies within the EU, but its provisions may have indirect implications for non-EU jurisdictions like Colombia in specific cases. The applicability of the Directive in Colombia depends on the legal and regulatory framework governing financial institutions and credit transactions in the country.

1. Colombian entities purchasing NPLs from EU institutions: If a Colombian company acquires NPLs from an EU financial institution, it may need to comply with due diligence obligations under the NPL Directive if the transaction involves an EU- based servicer. Such transactions must also comply with Colombian financial and contractual regulations, including Law 1328 of 2009 on consumer protection in financial services.
2. Credit servicers operating across jurisdictions: Colombian credit servicers seeking to manage EU-originated NPLs must meet the Directive’s authorisation requirements if they engage in servicing loans governed by EU law. However, if their activities are limited to Colombia, they will be subject to Colombian regulations rather than the NPL Directive.

4. Conclusion

The NPL Directive is not directly applicable in Colombia, as it is a regulatory framework designed for EU member states. Its provisions, however, may influence Colombian entities engaged in credit transactions with EU-based institutions. The main impact would be on cross-border transactions involving Colombian credit purchasers or servicers handling EU-originated NPLs.

Colombian financial institutions and regulators should remain informed about the Directive’s implications to ensure compliance with both domestic regulations and potential international obligations when dealing with EU-based credit transactions. While the Directive does not override Colombian law, entities engaged in cross-border financial activities should carefully assess its requirements in order to mitigate legal and operational risks.

For more information on NPL regulations in Colombia and in the EU, contact your CMS client partner or these CMS experts.