Monday 20 November 2017

ECB plans 'non binding' rules to tackle stock of bad loans

European Central Bank HQ in Frankfurt. Photo: Ralph Orlowski
European Central Bank HQ in Frankfurt. Photo: Ralph Orlowski

Balazs Koranyi and Francesco Canepa

The European Central Bank (ECB) plans to give Eurozone banks non-binding guidance by the end of 2016 or early 2017 to cut their bad debt pile.

The ECB, which supervises 129 of the biggest banks in the Eurozone, will eventually set confidential quantitative and qualitative targets but not all will necessarily come in writing, sources told Reuters.

This would give banks some flexibility and suggests that the ECB will at least initially rely heavily on persuasion.

The ECB will ask banks to set up processes to deal with bad loans with executive or board level oversight, and the new rules will treat differently bad loans on the books for years than recently soured debt.

Banks will be measured on how much collateral they have repriced, for instance to reflect worse economic conditions, and how many corporate borrowers they have reassessed to estimate their chances of repaying loan, another source said.

Information will also be demanded about whether the banks have exercised forbearance - an agreement with a borrower to delay a foreclosure - and for how long.

The supervisor will also ask how many loans banks have reclassified, for example from being performing to non-performing, and on how many they have taken action to recover the money.

Euro area banks are weighed down by around €900bn of bad debts.

Regulators want to give banks a push, however, facing up to the issue risks increasing funding costs and ultimately may hold back economic growth. That would counter the efforts by the ECB's monetary policy arm to stimulate activity and keep credit flowing.


Irish Independent

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