The ECB’s New Requirements will Stimulate another Mass Sale of Doubtful Debts by the Banks

20 February 2020 – Brainsre.news

When the ECB’s Banking Supervisory Body was created in November 2014, the volume of doubtful loans held by the major credit institutions amounted to around €1 billion. That figure had been reduced to almost half by the end of March 2019, to reach €587 million (the ratio of doubtful loans stood at 3.7%). Despite the recent progress, the ECB still attributes the utmost importance to continuing to reduce the level of doubtful loans, “resolving them as quickly as possible whilst the economic conditions remain favourable”, as the body pointed out recently.

Sales or provisions

Based on this premise, the new doubtful loan rules force entities to assume a greater impact on their bank accounts to minimise the risk of delinquent debt, which will stimulate the sale of these types of mortgage portfolios. “That or they will have to prepare themselves for larger provision cushions”, say financial sources. Sabadell acknowledged the impact of these measures on some of Spain’s banks at the most recent presentation of its results. The bank reported a range of between 5 and 10 basis points on the cost of risk and up to 20 basis points on the CET1 capital ratio.

Original Story: Brainsre.news

Translation/Summary: Carmel Drake

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