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Wednesday 16 October 2019

EU plan makes it easier for banks to sell bad loans to vulture funds

Comments: Romanian Finance Minister Eugen Teodorovici. Picture: Reuters
Comments: Romanian Finance Minister Eugen Teodorovici. Picture: Reuters
Donal O'Donovan

Donal O'Donovan

Ireland is seeking to block a European plan to make it easier for banks to sell off their bad loans.

European Union ambassadors agreed the proposals yesterday, according to Romania's Finance Minister Eugen Teodorovici, who chaired the negotiations among the 28 countries.

The new rules are expected to lower regulatory barriers to making cross-border purchases, although in Ireland in practice there have been little or no hurdles to US funds buying loans worth billions of euro.

However, the EU-wide plan is being opposed by Ireland amid concerns that it will allow loans to be sold to entities not regulated by the Central Bank here.

A spokesman for the Department of Finance said: "The Irish Ambassador to the EU made a strong intervention today against the proposal outlining how the approach was not in line with our domestic policy approach on the matter. Once the file is brought to a council, Ireland will be voting against it."

The European move is also effectively on a collision course with Sinn Féin's proposed legislation to restrict the sale of mortgages to vulture funds, dubbed the No Consent, No Sale Bill.

This legislation has secured wide support in Leinster House despite opposition from the Government and would prevent banks selling mortgages without explicit consent in advance from borrowers.

At EU level however, there is a move to clear stocks of bad loans held by banks, in some cases since the financial crisis.

Regulators have also toughened their stance, demanding that banks in Ireland cut their stocks of bad loans towards a euro area average of around 3.5pc.

Selling such loans is controversial, and not just here in Ireland. The UN this week condemned what it called the financialisation of housing markets.

This process has accelerated as a result of the entry of US investors and so-called vulture funds who have gobbled up swathes of property and property loans in the decade since the crash.

The agreement reached is expected to favour the purchase and servicing of so-called non-performing loans "which will lead to the development of efficient secondary markets", said Mr Teodorovici.

Details of the overhaul have yet to be finalised, and will require agreement from the European Parliament.

However, there is likely to be resistance in the parliament to any move that makes it easier for private equity and vulture funds to buy assets.

Although the scale of EU banks' bad loans problem has been steadily decreasing in recent years, there is still a backlog of more than €700bn hanging over EU banks' balance sheets. This is especially the case at lenders in Italy, Greece, Ireland and Cyprus.

In a less positive development for banks, EU states failed to reach a deal on proposals put forward by the European Commission that would make it easier for lenders to repossess assets from borrowers who default.

The proposal was to introduce a mechanism to bypass the courts in order to speed up banks' recovery of collateral.

Irish Independent

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