ECB unveils compromise solution for banks' soured loan problem
Frankfurt: European Central Bank supervisors will give euro zone banks extra time to set cash aside against their bad loans if their pile of soured debt is particularly high, the ECB said on Wednesday.
Under the new and long-awaited guidelines, the ECB’s Single Supervisory Mechanism will take “bank-specific supervisory expectations” for the provision of non-performing loans (NPLs), while using benchmarks to ensure consistency.
“The bank-specific supervisory expectations are based on a benchmarking of comparable banks and guided by individual banks’ current NPL ratio and main financial features,” the ECB said.
Its aim “over the medium term” is to achieve the same coverage for old non-performing loans as is the case with new ones, for which banks have to fully provide in two years, if they are not backed by collateral.
The ECB’s announcement confirms Reuters reports that supervisors were seeking a compromise solution after an earlier proposal to set the same timeframe for all had met with resistance from bankers, lawmakers and even within the central bank.