The European Commission says its package of temporary "quick fixes" for banks could boost lending to euro area households and businesses by as much as €450m during the Covid-19 crisis.
The move came as data from the European Central Bank (ECB) shows banks in the euro area have tightened lending standards to businesses and households since the start of the year - the opposite of what policy makers want them to do to support the bloc's economies through the crisis.
A report in the Irish Independent last week revealed that some mortgage lenders here are no longer allowing exceptions to the Central Bank's mortgage rules, even after regulators had eased back terms for banks themselves.
Yesterday, EU Economy Commissioner Valdis Dombrovskis announced a package for banks that includes delaying the implementation of some tougher accounting standards for bad loans and more flexibility for lenders in calculating their capital positions which in turn determine how much each can lend.
The package would support extra lending potentially worth up to €450bn, Commissioner Dombrovskis said in a statement.
However, Davy Stockbroker's analyst said the package is unlikely to be effective while banks lack visibility on potential loan losses that will result from the current lockdowns, unless loans are guaranteed.
"Given the level of uncertainty, getting banks to lend is going to require something like government guarantees for those loans," Diarmaid Sheridan of Davy Stockbrokers said.
"Regardless of how well capitalised a bank is they still have a fiduciary duty to lend prudently," Mr Sheridan said.
Yesterday Spain's Banco Santander, one of the euro area's biggest lenders, said it is holding back €1.6bn specifically for losses linked to the Covid-19 outbreak - just one part of an increased provision for what it now expects to be higher loan losses.
Italian lender UniCredit and Germany's Deutsche Bank have also reporting rising provisions for bad loans.
Ratings agency S&P last night put Ireland's three domestic banks on watch for a potential credit downgrade, seeing their profitability prospects weaken by the impact of Covid-19.
Commissioner Dombrovskis said the EU plan aims to ensure banks continue to lend.
"We are using the full flexibility of the EU's banking rules and proposing targeted legislative changes to enable banks to keep the liquidity taps turned on, so that households and companies can get the financing they need," he said in a statement.
Yesterday's package offers flexibility in how provisions are calculated so as to delay their eventual hit to a bank's capital buffer. The aim being to avoid lending turning into a trickle in the face of mounting bad loans caused by the pandemic.
Delayed repayments should not automatically lead to a harsher accounting treatment of the respective loans, the Commission said.
"These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery," it said.