March 13, 2018 / 3:33 PM / 8 months ago

EU banks to face higher prudential backstops for new loans - draft

BRUSSELS, March 13 (Reuters) - European Union banks will have to set aside more capital against new loans that could turn sour as of Wednesday when the European Commission will publish a proposal on the prudential treatment of bad debt, a draft document showed.

The European Commission document, seen by Reuters, said the new rules would apply to loans originated from the date of the adoption of the proposal, which is Wednesday.

The proposal will only concern new loans, and not the huge amount of bad debt that is already on the balance sheets of European banks.

Banks will have to write down within two years their new unsecured loans that turn bad, and within eight years their secured bad loans with a non-linear reduction of their exposure, the document showed.

EU states and legislators will have to agree on a final Commission’s proposal. (Reporting by Francesco Guarascio; editing by Philip Blenkinsop)

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