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2022 European Commission Guidelines on NPL – What you need to know

On 18 October 2022, the European Commission published Guidelines for a best-execution process for sales of non-performing loans (NPL) on secondary markets.

The document comes in the context of improving secondary NPL markets as outlined in the December 2020 Action Plan on “Tackling NPLs in the aftermath of the COVID-19 pandemic”. 

In this article, we will make a brief overview of the main highlights and directives from the 2022 Guidelines document. 

Economic context and NPL Market

Inflation levels inside the Euro Area are heading toward double digits (9.9% in September 2022), something we haven’t seen in at least 25 years. The inflation is largely driven by the effect of the war in Ukraine, which particularly impacted Energy bills (+40.7% in September). 

Aside from inflation, several other factors are expected to have a material impact on economic growth: the looming shadow of Covid-19 (expected to materialize as the supporting schemes introduced by many governments come to an end), the uncertainty caused by recent and possible new supply disruptions (due to gas shortage) and a sharp increase of interests rates constraining economic activities.

The IMF in its October 2022 outlook forecasted a global growth slowdown, with the Euro Area especially hit and expected to not exceed 0.5% in 2023 (down from 3.1% in 2022), with Italy and Germany in the negative area at -0.2% and -0.3% respectively.

With these conditions, the overall credit quality inside the banking sector is expected to deteriorate significantly in the coming months with a new flow of NPE at double the level of recent years in some countries.  

Unless a marked change of direction will occur, the NPL market will need to push volume above the “usual” 100bn per year, as outlined by the PWC 2022 report on european non core asset market.

If you want to get a brief overview of the PWC report, watch the following video where our NPL analyst Claudio Capo looks at the main updates and insights from the document:

Banks’ disposal is the main, if not the only, tool to counterbalance the growth of NPE on their balance sheets. A well-functioning secondary market has been therefore indicated as critical by the European Commission to prevent a rump-up of NPLs.

What do the European Commission Guidelines entail?

The content of the document is not meant to be mandatory and represents instead a collection of best practices that support sellers and buyers, especially those with limited experience in less developed markets. The other main objective of the commission is increasing standardization which will enable more efficiency as well as transparency for a successful outcome among all involved parties.

The European Commission is not the only institutional body seeking standardization. The European Banking Authority is also attempting to implement data templates that are specific to non-performing loans transactions

Main steps of NPL sales processes on secondary markets

The guidelines, mainly targeted to banks, identify specific steps of the process, namely:

  1. Transaction structuring: Portfolio selection
  2. Preparation phase
  3. Pre-marketing phase
  4. Non-binding phase (Phase 1)
  5. Binding phase (phase 2)
  6. The signing of the transaction and closing
  7. Post-closing

The key activities are highlighted for each stage, together with how market participants can address them. 

A particular emphasis is given to data management and the limitations that existing IT systems might face in dealing with non-ordinary transactions. Processes such as loan tape preparations on distressed positions might require data remediation and validation and might need contributions from different departments that need to be managed and coordinated.

The Guidelines identify “External Service Providers” that can support each stage of the process. These include Financial advisors, Legal and tax advisors, Technical advisors, VDR providers, and Transaction platforms.

A significant part of the Guidelines is focused on Transaction Platforms. These are defined as an “efficient manner to minimize the disadvantage of dealing with a large number of investors” and “designed to shift the complexity of interacting with multiple possible investors from the Seller to a purpose-built platform.”

Cardo AI NPL solutions

At Cardo AI, we have been addressing the NPL industry with dedicated features that support buyers and sellers throughout the whole process. With particular reference to the Key Activities indicated by the Guidelines, our offer includes the following functionalities. 

Loan data tape preparation, standardization, and validation

Key activities Covered by Cardo AI Our features
Data preparation: Our team has analyzed, managed, and integrated into our system 100+ different datasets from different originators covering multiple asset classes: SME loans, consumer credit, Residential and Commercial Real Estate, leasing, auto loans, performing and non-performing credit cards.
Data quality: Every single data point retrieved by our technology undergoes multiple checks. These range from simple format and validity controls to cross-field and cross-file validation to ensure reliability and consistency between different items and over time (more than 600 standard controls).
Standardization: We leveraged years of experience on the market and incorporated market standards (preliminary EBA templates, ESMA transparency annexes) into our data model, enriching it with additional data points in order to support the industry’s best practices.
Our data model enables data management of different asset classes within a single framework, ensuring full comparability among transactions.
Loan data tape:   We produced over 200 data tapes covering different use cases that go from periodic and ad-hoc reporting to valuation of transactions, and Virtual Data Room.

VDR and Q&A management

Key activities Covered by Cardo AI Our Solutions
VDR: Our proprietary Hyper Data Room solution offers a fully digital due experience supporting both Sellers and Buyers through the whole deal process. Data retrieval is automated and supported by data quality checks, and information is standardized in accordance to EBA templates’ guidelines. All outputs are supported by statistics and analysis at loan, borrower, and portfolio levels and different stratifications including GBV, JMV, and OMV for different dimensions such as geography, procedures, vintage, etc.
Q&A management: Our Q&A solution supports all communication needs of complex VDR processes, optimizing interactions among multiple parties in a transaction (sellers, buyers, and advisors). All issues can be addressed in a centralized way, organized by topic or linked to specific exposure/collateral/borrower, defining the level of disclosure among participants and supported by dedicated additional information (e.g. documentation, specific data, etc.)


At Cardo AI, we want to ensure that our clients are always ahead of the curve and compliant with regulations. We can gladly confirm that everything the European Commission’s new guidelines require, is already included in our product offerings.

If you would like to see a demo of how our products work, please request a demo here and one of our representatives will be happy to walk you through it.