Spain 
Italy 
Greece 
NPLs: European Council Approves Changes to Capital Requirements
31 October 2018
A proposal presented in March by the Commission established new regulations that have the aim of having banks set aside “sufficient” resources for cases in which new loans start to under-perform.
The Presidency of the European Council (EC) will be able to start negotiations with the European Parliament (EP) on capital requirements for banks with a high level of non-performing loans, or bad debts, on their balance sheets.
EU ambassadors approved the Council’s proposal on Wednesday, so “negotiations with the EP can start as soon as it has defined its position”, requiring a qualified majority for adoption by the EC.
The Commission’s initial proposal set out requirements aimed at leading banks to earmark “sufficient” in-house resources for cases where new loans begin to under-perform. It also created incentives to “adequately address bad debts at an early stage.”
“Addressing the problem of bad debts and consolidating banks’ balance sheets is essential to restoring confidence in our financial system. Such measures require sound prudential standards and effective monitoring tools. Today’s agreement is a significant step towards realising these two goals and ultimately strengthening our Banking Union,” said Austrian Finance Minister, who currently holds the Presidency of the Board, Hartwig Löger.
According to the proposal discussed by the ambassadors, different coverage requirements will be applied according to the classification of the bad debts as “unsecured” or “secured” and “due to the fact that the guarantee is in the form of movable or immovable assets,” the EC said in a statement.
Regarding non-performing loans secured by immovable assets, such as housing or commercial property, it is “reasonable to assume that real estate will retain value for a longer period after the claim has become not productive.”
These new measures mean that a gradual increase in the minimum level of loss coverage is envisaged over a nine-year period.
“Full 100% coverage for non-performing assets secured by movable assets and other guarantees eligible under the RRFP will have to be in place after seven years,” the proposal says.
On the other hand, unsecured credit “require higher and earlier minimum loss coverage because they are not covered by collateral,” with the full coverage requirement to be in place after three years.
Original Story: Jornal Econômico – Ânia Ataíde
Translation: Richard Turner