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European Commission issues new guidance for…

VP Law Firm • nov 15, 2022

European Commission issues new guidance for NPL sales in secondary markets

On 21 October 2022, the European Commission (EC) published „A new set of guidelines for a best-execution process for sales of non- performing loans on secondary markets“. These guidelines provide NPL sellers and buyers with a clear and structured process that should accelerate development and standardise processes in secondary markets.

Purpose of new EC Guidelines

The EC initially announced the Guidelines in its Action Plan on tackling non-performing loans (NPLs) in the aftermath of the Covid-19 pandemic, adopted on 16 December 2020.

The coronavirus outbreak has led to a sharp economic downturn in the EU, and the Covid-19 crisis has increased the exposure of banks to companies and individuals that have become financially more vulnerable, in particular small and medium-sized enterprises (SMEs). When national support measures are phased out, it is likely that insolvencies may rise. As the key lesson of the previous economic crisis is that any build-up of NPLs ought to be prevented at the outset, banks need to be ready to identify debtor distress early, engage proactively with their borrowers in a timely manner and consider appropriate restructuring when needed. In the event that a sale of NPLs to third-party investors is considered a suitable approach, banks should be ready to conduct an efficient and effective transaction process, leading to the best possible outcome.

The Guidelines serve to foster best practices in NPL transactions, particularly to aid sellers and buyers that have less experience offloading NPLs in secondary markets in the EU.

Content and target audience

Each chapter of the Guidelines covers one stage of the process of selling NPLs in chronological order. The document sets out seven stages of the transaction, namely:

  1. Portfolio selection;
  2. Preparation phase;
  3. Pre-marketing phase;
  4. Non-binding offer phase;
  5. Binding offer phase;
  6. Signing of the transaction and closing; and
  7. Post-closing.

For each of these phases the Guidelines describe the sequence of main activities to be performed within the preparation of the competitive transaction process. The Guidelines outline some practices and conditions considered necessary to achieve a successful outcome, as well as steps that parties to a transaction could take to enhance the efficiency and effectiveness of the process and aspects especially important for particular types of transactions (and, in some cases, the size) and/or category of the assets involved. The document also considers the significance of exchanging the relevant data and information and suggests the extent to which information should be disclosed in each phase.

As such, the Guidelines provide NPL sellers and buyers with a clear and structured process that should enable them to achieve a successful outcome.

Banks are the primary target audience for the Guidelines, especially smaller institutions that have less experience with offloading NPLs in secondary markets. Beyond the banking sector, the Guidelines could also provide a reference document for other institutions that engage in sales of NPLs.


Although market participants are not obliged to follow the Guidelines, they are clearly a reference document with multiple uses and are expected to enable more standardisation of NPL sales in secondary markets and improve market practices in EU Member States, in particular where secondary markets are less developed. The Guidelines are a major step in the EC’s broader efforts to enhance European secondary NPL markets and will promote financial stability throughout the EU.