EBA head says state aid an option for banks hit by bad loans

Andrea Enria, Chairperson of European Banking Authority (EBA), attends a policy dialogue at the Asian Financial Forum in Hong Kong January 19, 2015. REUTERS/Bobby Yip/File Photo

MILAN (Reuters) - State aid is an option for lenders that have large amounts of bad loans on their balance sheets, the president of the European Banking Authority, Andrea Enria, said in an interview published on Thursday.

Enria told Italian daily La Stampa he could not comment on individual banks.

But when asked if public intervention were a reasonable option for the troubled Banca Monte dei Paschi di Siena BMPS.MI, he replied: "The problem of banks' bad loans should be solved quickly... if state aid can be part of the solution, it should be used."

Vincenzo Visco, Italy’s central bank governor, said in August that public support for an Italian bank should not be ruled out.

After emerging as the weakest bank in the euro zone in the European stress tests, Monte dei Paschi agreed a plan with the European Central Bank in July to raise 5 billion euros (4.30 billion pounds) in new equity capital. It said it would also sell 28 billion euros worth of bad loans at a deep discount.

Fears over the feasibility of this privately funded rescue plan have hit Monte dei Paschi in recent days, pushing the stock down to a new record low of 0.18 euros on Tuesday.

Investors are concerned that if the lender were to turn to state aid, it would trigger the “bail-in” rule that imposes losses on the bank’s shareholders, bondholders, and large depositors.

“The ‘bail-in’ principle is fair,” said Enria, though he added that it could be a problem for retail investors who were sold junior debt.

“It is up to banks to repurchase these bonds (from retail investors) and sell new bonds to institutional investors,” Enria said.

Reporting by Francesca Landini; Editing by David Goodman and Andrew Heavens