BRUSSELS (Reuters) – European banks should limit the stock of bad loans with a a lot more 5 percent of the loans they hold, Germany and France said in a joint document, recommending a ceiling that may force Italy along with other EU countries to hasten offloading plans.
The document, adopted before an EU summit scheduled for monday in Brussels, asserted all European banks should target reducing their gross experience of non-performing loans (NPLs) with a maximum ratio of Five percent.
“There needs to be an aim a 5 percent gross NPLs as well as.Five percent net NPLs for anyone SRB (Single Resolution Board) and everything other banks,” the document said.
SRB banks are generally large euro zone lenders and are below the watch with the EU agency in charge of resolving ailing banks.
“Competent authorities will define individual techniques for the reduction of NPL stocks for relevant banks,” the document said.
The recommended ceiling on bad loans is a blow to Italy along with countries whose banks hold large stocks of NPLs.
The average gross NPLs exposure in Italian banks is 11.1 %. In bailed-out Greece, it’s 44.9 % also in Cyprus average gross NPLs exposure is 38.9 percent.
Exposures are usually through the 5 percent suggested target in Bulgaria, Croatia, Hungary, Ireland, Portugal, Slovenia, Poland and Romania, based on European Banking Authority’s data updated to last December.
Across the EU, banks’ average ratio of NPLs is Four percent. In Germany and France it really is underneath the average, and some individual banks cash higher exposures.
Italy, whose banks secure the bloc’s largest stock of soured debt in absolute terms, has reduced NPLs lately but has repeatedly argued against hastening the offloading way to avoid excessive costs on lenders.
But the Franco-German plan urges an acceleration.
“Member states/banks that don’t reach these goals will undertake specific efforts also involving their insolvency/debt enforcement regimes to arrive at these goals inside of a short time,” the document said.
“Union legislation on Accelerated Extra-judicial Collateral Enforcement (AECE) offering additional choices for improvement of collateral enforcement needs to be adopted.”
The call for a change of insolvency rules is aimed at helping banks recover loans that went sour after Europe’s debt crisis. It may however run against plans from Italy’s new eurosceptic government to abolish any rule which may support faster, extra-judicial debt recoveries, using the program agreed by Italy’s coalition executive.
Germany and France be aware of the decrease in NPLs as crucial for progress within the EU’s flagship banking union, which may involve a frequent safety net to get a banking fund for ailing lenders as well as a joint insurance on bank depositors.