The European Central Bank’s plan to force banks to set aside more money against future bad loans got tacit support from euro zone finance ministers on Monday despite concerns in Italy the move might weaken some of its banks.
Eurogroup head Jeroen Dijsselbloem told a news conference there was “a general agreement” among euro zone ministers about the ECB approach.
He said there was very little debate on the issue and that the proposed measures were aimed at making banks more solid.
The ECB’s top supervisor, Daniele Nouy, earlier was quoted as telling the ministers the central bank intended to move ahead with its plan.
It is “the right time” to proceed with the more stringent measures in order to avoid a new build-up of non-performing loans (NPLs) by euro zone lenders, an EU official quoted her as saying.
The bloc’s banks accumulated 1 trillion euros ($1.1 trillion) of bad loans during the decade-long financial and economic crisis, and the number has only recently decreased to nearly 800 billion euros.
The mass of bad loans has affected banks’ ability to provide credit to firms and households, slowing down the bloc’s economic recovery.
Italy, the euro zone country most affected by the problem, has opposed the new ECB move, fearing it could weaken some of the country’s banks.
However, the main regulatory risk for lenders saddled with bad loans would come from ECB’s stricter directives to reduce the existing stock of NPLs, as it could force fire sales of assets leaving big holes in banks’ balance sheets.
But this risk seems to have been receded as the ECB is unlikely to present tough guidelines on the reduction of the bad loan stock.
New measures, expected by March, will be different from the planned guidelines on new bad loans, and are expected to focus only on the banks with acute problems, rather than on the whole sector.
Source: Reuters (Reporting by Francesco Guarascio Editing by Jeremy Gaunt)