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EU Commission to present bad loans roadmap, may slow ECB plan: draft

LUXEMBOURG (Reuters) - The European Commission will present on Wednesday a list of measures it plans to put forward by next spring on reducing bad loans held by European banks, a draft document said, a move that could slow similar moves by the European Central Bank.

FILE PHOTO: European Union flags flutter outside the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, April 21, 2016. REUTERS/Ralph Orlowski/File Photo

The ECB banking supervisor proposed last week that euro zone banks should set aside more cash from next year to cover newly classified bad loans and may also present additional measures to tackle the sector’s huge stock of bad debt which amounts to nearly 1 trillion euros.

But the ECB move may be slowed by similar legislative proposals which the European Commission could put forward next year to tackle non-performing loans (NPLs).

In a draft document to be released on Wednesday, the Commission said it could propose by spring changing banking rules “with regard to the possible introduction of minimum levels of provisioning which banks must make for NPLs”.

The document said the possible measures “will prevent the build-up and potential underprovisioning of future NPLs stocks across member states and banks via time-bound prudential deductions from own funds.”

While the aims coincide with the ECB plan, the Commission’s parallel process could slow things down. EU legislative proposals require the backing of EU states and parliamentarians, a process that takes usually several months or years before rules are finally agreed and enter into force.

The Commission could also decide not to put forward new legislative proposals on the issue, one EU official said.

The commission’s vice president Valdis Dombrovskis declined to comment on the matter in a news conference on Tuesday.

In a separate report, also to be released on Wednesday, the commission will provide an interpretation of current banking rules and ECB powers.

Enigmatically, the interpretation is set to clarify that “supervisory powers (..) allow the competent authorities to influence banks’ provisioning policies with regard to NPLs within the limits of the applicable accounting framework and to apply specific adjustments where necessary for prudential purposes,” the draft document seen by Reuters said.


The 28 EU states agree in principle on the need to reduce bad loans but have different views on how fast to address the problem.

Italy, whose banks are saddled with the highest amount of bad loans in the bloc, wants a gradual reduction of soured loans, fearing that an excessively fast unloading would create large capital holes in banks’ balance sheets.

Finance Minister Pier Carlo Padoan openly criticized the approach taken by the ECB.

Other states want to go faster.

“I can only support the ECB with its position. A large majority of European finance ministers also supported (ECB chief Mario) Draghi on this point,” Germany’s outgoing Finance Minister Wolfgang Schaeuble said after a meeting of finance ministers in Luxembourg on Tuesday.

The European Parliament said the strategy to tackle NPLs should be devised through a regular legislative process, rather than decided by the ECB unilaterally.

“I seriously wonder whether specific additional obligations... can be imposed on supervised entities without appropriately involving the co-legislators in the decision-making process,” the parliament’s president Antonio Tajani said in a letter to Draghi.

Banks have repeatedly voiced their concerns about plans to give supervisors more powers and warned against measures that could be excessive and unduly increase costs.

In the documents to be released on Wednesday, the commission will also propose new measures to increase financial stability in Europe.

It will reiterate plans to facilitate banks’ recovery of soured credit, and the development of a secondary market for bad loans, so that banks can sell them at higher prices.

Additional reporting from Peter Maushagen and Robert-Jan Bartunek