Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268042 
Year of Publication: 
2022
Series/Report no.: 
ECB Occasional Paper No. 297
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper looks at the macroeconomic impact of the two policies proposed by ECB Banking Supervision to tackle the high share of non-performing loans (NPLs) on the balance sheets of euro area banks. The first is the coverage expectations for new NPLs set out in the Addendum to the ECB's NPL Guidance, which aim to prevent the build-up of new NPLs, and the second is the coverage expectations for legacy NPLs, which target the reduction of already existing stocks of NPLs. The impact assessment of the package is analysed via a semi-structural model, the Banking Euro Area Stress Test (BEAST). The coverage expectations for NPLs are found to be effective in reducing banks' NPLs. The phase-in of the policies can temporarily reduce bank profitability owing to increased loan loss provisioning targets. However, over a longer time horizon, lower NPL ratios reduce uncertainty and enable banks to access cheaper funding in the markets, ultimately benefiting lending and output growth. Furthermore, the coverage expectations can also moderately but persistently reduce procyclicality in the banking system.
Subjects: 
Non-performing loans
impact assessment
loan loss provisions,regulatory policy
banking sector
real-financial feedback mechanism
bankingsupervision
JEL: 
E37
E58
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4851-7
Document Type: 
Research Report

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