 Why is it important for banks to reduce bad loans? Providing loans is a key task of European banks. It enables people to make purchases and companies to invest, which ultimately supports growth and jobs. But sometimes people or businesses run into financial difficulties and stop making the agreed payments. When this happens for a certain amount of time, a loan becomes non-performing. An MPL. Why are bad loans a problem? Banks with a high stock of MPLs earn less and therefore have less money to lend. They must also use the remaining earnings they have to cover future losses from non-performing loans. In short, bad loans cause banks to lend less. When banks lend less, consumers spend less and companies invest less. Fewer companies are founded and fewer jobs are created. This way MPLs harm economic growth. Banks with low profitability are also more vulnerable to economic crisis and market turmoil. This may even destabilise the banking system as a whole, as happened during the financial crisis. In other words, MPLs make banks less safe. It's the ECB's task to monitor the health of European banks so that they can provide people and businesses with credit. The ECB thus ensures that bank strategies to tackle MPLs are ambitious but realistic. For instance, banks can decrease their stock of bad loans by selling them or by changing how repayments are made. Tackling the issue of MPLs is worth the effort. Banks will become more profitable and lend more money to the real economy. They will also become more stable and thus more resilient to economic crises. People and companies will find it easier to access credit. They will consume and invest more, which supports the economy and jobs. To sum up, solving the problem of non-performing loans is not just good for banks. It benefits all of us.