Fitch tells ECB there are limits to pressure on banks

Fitch tells ECB there are limits to pressure on banks

Fitch said on Wednesday that European Central Bank guidance calling for eurozone banks with high levels of nonperforming loans (NPLs) to set “ambitious” time-bound quantitative NPL reduction targets could, in extreme cases, push the weakest banks closer to a formal resolution process, triggering losses for senior bondholders.

“We believe there are limits to how quickly the ECB can force some of the weakest banks to reduce NPLs without crystallizing capital shortfalls that they may not be able to address privately, although ‘precautionary recapitalization’ with state funds may be possible for some banks if strict conditions are met,” warned the rating agency.

The ECB has not said how it will determine the “high NPL banks” subject to the guidance, “but we calculate that at least 35 of the 125 ‘significant institutions’ under the ECB’s direct supervision have levels of NPLs that are double the eurozone average, based on European Banking Authority data. These are mostly in Greece, Ireland, Italy, Portugal and Spain, but some operate in more benign economies in Northern Europe,” Fitch said.


Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.