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Financial News: ECB Asks Banks To Set Aside Extra Funds

ECB Asks Banks To Set Aside Extra Funds To Fully Cover New Bad Debt

10/04/2017 - 07:30:00 (RTTNews)

(RTTNews) - The European Central Bank on Wednesday asked banks to set aside more cash to fully cover loans that are classified as bad from the start of next year and also to submit strategies to reduce the huge pile of bad debt.

Banks must provide full coverage for the unsecured portion of new non-performing loans, or NPLs, after 2 years at the latest and for the secured portion after 7 years at the latest, the ECB said in its proposal.

The prudential provisioning expectations will apply to all exposures that are newly classified as non-performing as of January 1, 2018. The length of time a loan has been non-performing and the extent and valuation of collateral are two factors considered to classify a loan as non-performing.

One of the European Banking Authority definitions for non-performing exposure states that loans that are "90 days past-due" are bad.

Further, banks are expected to explain any deviation from the guidance to supervisors, based on which the ECB will determine the need for additional supervisory measures.

By the end of the first quarter of 2018, ECB Banking Supervision will present its consideration of further policies to address the existing stock of NPLs, including appropriate transitional arrangements.

Eurozone banks have nearly a combined EUR 1 trillion worth of bad loans, most of which are a legacy of the global financial crisis. The huge debt pile is hurting the economy as banks are reluctant to lend, thus crippling the recovery.

The ECB has launched a public consultation on the proposal until December 8 and will hold a public hearing on November 30.

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