Faux pas

10 November 2017 By Lisa Jucca Follow @LJucca

The central bank overstepped its authority with proposals to impose stricter rules on banks for non-performing loans, the EU’s parliament says. The ECB is right to target European lenders’ 840 billion euro mountain of bad debt, but its clumsy move may set back the effort.

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ECB bad-loan blitz to spur Italy insolvency reform

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The European Parliament’s legal service said the European Central Bank had gone beyond its institutional mandate in proposing draft new guidelines for the provisioning of non-performing loans at European banks, Reuters reported on Nov. 8, citing a written legal opinion. The legal service said the ECB’s Single Supervisory Board “has no competence” to adopt the plan in its current form, according to Reuters.

In a consultation document published on Oct. 4, the ECB said banks would have to take full provisions against new unsecured non-performing loans that remain outstanding after two years and secured NPLs outstanding after seven years. The ECB said the banks would have the option to comply with the rules or explain why they deviate from them.

The European Parliament and Italy – where banks have 175 billion euros of bad loans on their balance sheets, according to Bank of Italy data – have criticised the proposed rules as too strict. European banks held about 840 billion euros of non performing exposures as of June, according to ECB statistics.

ECB Supervisory Board Chair Daniele Nouy told a European Parliament hearing on Nov. 9 the ECB was prepared to delay implementation of the new rules beyond an expected Jan. 1, 2018 start and improve them to take into account all feedback.

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