Recently, the European Central Bank (“ECB”) got tougher on the European lenders by asking them to set aside cash for the loans that would be classified as bad debts from the beginning of 2018. Also, it asked the banks to come up with plans to manage the huge pile of bad debts present in their balance sheets.
Banks will be required to fully cover the unsecured portion of new non-performing loans within two years beginning January 2018, while the secured portion is to be covered within a span of seven years.
The central bank proposed this push in order to tackle the bad loans of €1 trillion in the economy. Most of these loans are the legacy of the financial crisis.
Per ECB, these loans are interfering with the recovery of the economy as banks are becoming reluctant to lend. This is offsetting the benefit the central bank is trying to provide the European economy through low interest rates.
Per the ECB guidelines, a loan is deemed as non-performing depending on the length of time it has been non-performing along with the extent and valuation of collateral. Another definition for treating a loan as non-performing is it being 90 days past due.
The banks would be liable for an explanation to supervisors in case they deviate from the above guidelines based on which the ECB would determine the need for additional supervisory measures.
The central bank will hold a public consultation on the planned change till Dec 8.
Also, by the end of first-quarter 2018, ECB Banking Supervision will present its consideration of further policies to address the existing stock of non-performing loans, including appropriate transitional arrangements.
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ECB Takes Step to Reduce Debt Pile, Makes Bad Debts Costly
Recently, the European Central Bank (“ECB”) got tougher on the European lenders by asking them to set aside cash for the loans that would be classified as bad debts from the beginning of 2018. Also, it asked the banks to come up with plans to manage the huge pile of bad debts present in their balance sheets.
Banks will be required to fully cover the unsecured portion of new non-performing loans within two years beginning January 2018, while the secured portion is to be covered within a span of seven years.
The central bank proposed this push in order to tackle the bad loans of €1 trillion in the economy. Most of these loans are the legacy of the financial crisis.
Per ECB, these loans are interfering with the recovery of the economy as banks are becoming reluctant to lend. This is offsetting the benefit the central bank is trying to provide the European economy through low interest rates.
Per the ECB guidelines, a loan is deemed as non-performing depending on the length of time it has been non-performing along with the extent and valuation of collateral. Another definition for treating a loan as non-performing is it being 90 days past due.
The banks would be liable for an explanation to supervisors in case they deviate from the above guidelines based on which the ECB would determine the need for additional supervisory measures.
The central bank will hold a public consultation on the planned change till Dec 8.
Also, by the end of first-quarter 2018, ECB Banking Supervision will present its consideration of further policies to address the existing stock of non-performing loans, including appropriate transitional arrangements.
4 Stocks to Watch after the Massive Equifax Hack
Cybersecurity stocks spiked on recent news of a data breach affecting 143 million Americans. But which stocks are the best buy candidates right now? And what does the future hold for the cybersecurity industry?
Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.
Get the new Investing Guide now>>