Banks prepare for generous loan haircuts

Banks prepare for generous loan haircuts

Banks are bracing for a haircut worth 10-12 billion euros to household and corporate loans in the next three years, as part of various settlements that are slated to be made in order to meet the target for reducing nonperforming loans by 40 percent by the end of 2019.

The target for the reduction of bad loans is set by the Single Supervisory Mechanism of the European Central Bank and translates into a decline in NPLs by some 40 billion euros in three years’ time.

The guidelines issued by the supervisory authorities provide for the reduction to be achieved in the following four ways: Loan repayment and settlements will shave some 15 billion euros, loan write-offs and haircuts will cut 10-12 billion, loan sales to funds will slash about 8 billion, and another 5 billion will go by way of property liquidation.

The haircut and the sales to funds will be the main instrument for clearing out consumer loans, which have a 55 percent nonperforming rate. Sources say that the first sale of consumer loans will take place by the first quarter of 2017 and concerns a portfolio worth 1.5 billion euros.

There will also be some generous write-offs to loans by small and medium-sized as well as some big enterprises, aimed not only to improve the portfolio of corporate loans, but also to help out any enterprises that have sustainability features and can be streamlined.

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