Reed Smith Client Alerts

A new European Union directive on non-performing loans could provide useful standards for credit institutions holding large volumes of NPLs on their balance sheets. The directive aims to achieve this by developing the secondary market for NPLs originated by EU banks. It sets out new rules for credit servicers and credit purchasers, all aimed at promoting NPL transactions and the NPL loan servicing market.

The guidance comes in the form of EU Directive (EU) 2021/2167 on credit servicers and credit purchasers (also known as the NPL Directive). The NPL Directive took effect 28 December 2021 with the deadline for implementation in all member states being 29 December 2023.

The new rules could be a factor in an increased business for specialised credit servicers supporting banks that lack expertise to properly service NPLs or are overloaded with NPLs.

Useful terms

  • A non-performing loan is a bank loan that is more than 90 days due or that the bank considers is unlikely to be repaid by the borrower.1
  • Credit purchasers buy the NPL from the bank or other credit purchasers as an investment. They often delegate the servicing of the NPLs to credit servicers.
  • Credit servicers manage the administration of NPLs on behalf of credit purchasers by recovering payments, renegotiating loan terms, and notifying borrowers of any interest rate changes or charges relating to the loans.
  • Credit service providers are third parties to whom credit servicing activities that would normally be undertaken by that credit servicer are outsourced.