FRANKFURT (Reuters) – Giving eurozone banks exclusive leeway in recognizing troubled loans could be a mistake that could slow the bloc’s recovery from the COVID-19 recession, European Central Bank supervisor Andrea Enria said Tuesday.
Faced with the aftermath of a deep downturn, European officials want to exempt banks from the pandemic-backed NPL rules for the first seven years to make life easier for them when the likelihood of NPLs rising. …
“I am not at all convinced that postponing the rules for the provision of the calendar now, when the recovery is just beginning, is the right choice,” – said Enria in her speech.
“Delaying or relaxing these rules would mean recognizing that the EU banking sector could remain jammed with secured delinquent loans related to the pandemic for more than a decade, leaving it unprepared for the next recession.”
The ECB has already warned that banks are not properly preparing for the flow of troubled loans, and some lenders are releasing reserves, even if the full impact of the crisis may not be evident for years.
Rather than giving customers more time to make payments, banks should negotiate restructuring to protect customers from over-indebtedness, Enria said.
“The decline in bad loans is associated with faster economic growth, increased corporate investment and lower unemployment,” he said, adding that other countries, including the United States, are adhering to shorter timeframes to completely write off impaired loans.
Banks in Europe received nearly $ 1 trillion in bad loans after the bloc’s debt crisis, and it took constant pressure from the ECB to tackle much of the problem.
(Reporting by Balash Koranyi, editing by Timothy Heritage)