FRANKFURT, Nov 30 (Reuters) - The European Central Bank is open to changing its contested plan on soured bank loans and may also delay the new rules but will stick for now to the key planks of the proposal, its top banking supervisor said on Thursday.
Planning to force banks to set aside more money against newly soured loans, the ECB has run into fierce opposition from Italy, which says the rules would thwart lending to small and medium sized firms and may even choke off growth.
Echoing Italy’s criticism, some lawmakers also argued that the ECB is reaching beyond its mandate as setting blanket rules for an entire sector is a legislative prerogative.
Bank sit on 843 billion euros of non performing loans, a legacy of Europe’s debt crisis which is still holding back lending, weighing on bank balance sheets and keeping share prices depressed.
Responding to the criticism, ECB supervisory chief Daniele Nouy acknowledged her proposed timeline was too tight and also said the ECB could change its rules if lawmakers amended relevant laws.
“A few additional months are probably needed,” Nouy told a hearing on the new rules when asked if they would come into force on Jan 1 as planned.
“If the Ecofin decides to go to Pillar I, legislative measures, once (they are) applicable and addressing all the portfolio we will adapt our own measures,” Nouy said about possible changes in the guidelines.
Nouy’s statement confirms a Reuters story that the new rules would be delayed at least by several months and possibly as much as a year while the ECB works through the feedback and weighs its options, given the opposition.
At the core of the problem is its plan to give banks seven years to fully provision for new bad loans backed by collateral and two years for unsecured ones.
Still, the ECB did not signal any intent to move away from the core of the proposal, including a plan to have the rules applied to all existing loans that turn non-performing after a cut off date.
Opponents hoped the bank would water down the original proposal, applying the guidelines only to new loans rather than to newly soured loans.
“We have calibrated our expectations taking into account international best practice, the results of our stocktake of national practices with regard to legal, judicial and extrajudicial elements, and supervisory judgment,” Sharon Donnery, the chair of the ECB’s High Level Group on NPLs, told the hearing. (Reporting by Francesco Canepa; Writing by Balazs Koranyi; Editing by Alison Williams)