October 13, 2017 / 8:48 AM / 10 months ago

Lawmakers hit out at ECB as bad loans standoff hardens

FRANKFURT (Reuters) - The head of the EU Parliament’s influential economic affairs committee has urged the European Central Bank to “correct” its stance on bad loans, adding to a backlash against attempts to clean up soured credit.

European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany July 20, 2017. REUTERS/Ralph Orlowski

Roberto Gualtieri’s comments to Reuters echoed concerns expressed by the parliament’s president Antonio Tajani this week, in what is emerging as the biggest challenge yet to the ECB as banking supervisor.

At the center of the dispute is how best to tackle banks’ bad loans, which stand at more than $1 trillion, a thorny issue that has divided euro zone countries and is now driving a wedge between the ECB and the EU’s parliament.

The ECB recently announced timelines to set aside money for losses on new loans that have gone roughly three months unpaid, angering EU lawmakers, who are trying to draft their own rules on soured credit.

“I share the concerns expressed by President Tajani,” Gualtieri told Reuters. Lawmakers want the ECB to first wait for the EU parliament before introducing such rules.

“I hope ... the consultation process will help the SSM (banks supervisor) to ... correct its guidance in order to make it more balanced.”

Both Tajani and Gualtieri are Italian but their views, unusually, are shared by some Germans. Italy and Germany clashed over Rome’s handling of its banking crisis, with Berlin pushing for tougher treatment of those banks’ creditors.

Markus Ferber, vice chair of the economic and monetary affairs committee and an influential member of German chancellor Angela Merkel’s Christian Democrats party, accused the ECB of overstepping its powers.

“I ... think that the ECB went beyond its mandate and in my opinion that undermines confidence in the work of the ECB as a supervisor,” Ferber told Reuters.

“The ECB tried to come up with universal new capital requirements. Such universal rules, however, should be a prerogative of the European legislator.”

Matt Carthy, an EU lawmaker from Ireland, where soured credit remains a problem after the country was nearly bankrupted in the financial crisis that began a decade ago, is similarly critical.

“The European Parliament should have a say in resolving in the ongoing bad loan problem — the problem requires political choices to be made and is not merely a technical matter that can be decided by the SSM alone,” he said.

Although often portrayed as chiefly an Italian problem, soured credit affects France and Germany too.

After Italy, which had bad loans of 262 billion euros at the end of March, the biggest pockets of debt not repaid over roughly three months are found consecutively in France, Spain, Greece, Germany and the Netherlands.

The picture alters when measuring the proportion of local loans that are bad. By this yardstick, Greece is worst, where almost one in two loans have not been serviced in three months, according to the European Banking Authority.

In Italy and Ireland, roughly one eighth of loans are soured, compared with less than 4 percent in France.

Rating agency Moody’s warned that the ECB drive could hurt the credit standing of banks in countries with many problem loans.

“This could cause problems for some firms, especially for those that do not have large capital buffers,” said Moody’s Alain Laurin.

Reporting By John O'Donnell; Editing by Andrew Heavens and Catherine Evans

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