New EU rules on Non-Performing Loans

The NPL market

The amount of loans made by EU-regulated banks which are technically classified as non-performing loans (“NPLs”) was estimated to be EUR 345 billion in the third quarter of 2023, representing 2.27% of the EU’s total bank loans. At the time of writing, the general expectation is that NPLs will rise in 2024, as a result of, among other things, the delayed impact of higher interest rates.

What’s new and why

The EU Directive on Credit Servicers and Credit Purchasers (Directive (EU) 2021/2167) creates certain new rules relating to NPLs which were originated by an EU bank.

The broad aim of these new rules is to reduce the number of NPLs, by improving the secondary market for NPLs.

The new rules impose various new obligations on:

• EU banks selling NPLs, whether to bank or non-bank purchasers;
• purchasers of NPLs who are not EU banks (credit purchasers); and
• entities servicing NPLs on behalf of credit purchasers (credit servicers).

The new regime will have a significant impact on trading, investment and most transactions involving NPLs.

Beware of the differences between Member States

Each EU Member State has an obligation to pass its own legislation to implement the Directive. At the time of writing, not all of the 27 Member States have implemented the Directive, despite a deadline of 29 December 2023. More on this in section 7 below.

Purpose of this note

The purpose of this note is to provide an overview of the Directive. If you would like to know more about anything in this note, please contact one of the persons named at the end of this note or your usual CMS contact.