Moving closer to a stricter backstop plan for NPLs

Moving closer to a stricter backstop plan for NPLs

European Union states are close to a deal on rules for banks saddled with bad loans, according to diplomats and EU documents, with a plan that would give banks less time to build a backstop against new soured debt.

Eurozone banks have yet to recover from the 2008 financial crisis, and this year their shares dropped more than 20 percent.

Italian banks have fallen nearly 30 percent and seen increased losses after a euroskeptic government took office in Rome in June.

The new rules, if adopted, could cause them further trouble.

They would have only seven years, instead of eight, to build a backstop that would fully cover new bad loans secured by collateral, under an EU proposal seen by Reuters.

The plan, prepared by the Austrian presidency of the European Union, would amend legislative proposals made by the European Commission in March for common minimum levels of money banks need to set aside against bad loans.

In a concession to countries where banks hold higher levels of bad debt, EU governments are backing an extension to three years from two that banks have to cover new unsecured, riskier loans that go bad.

Nonperforming loans make up an average of just 3.6 percent of total lending at EU banks. But in Greece they account for nearly half of loans and in Italy almost 10 percent.


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