EU seek­ing col­lec­tive ap­proach to deal­ing with bad bank loans

Kuwait Times - - BUSINESS -

Euro­pean Union finance min­is­ters have backed pro­pos­als to jointly ad­dress the is­sue of non­per­form­ing loans in the bank­ing sec­tor, which has been an eco­nomic prob­lem par­tic­u­larly in Italy and Spain. At a reg­u­lar gath­er­ing yes­ter­day, the finance min­is­ters out­lined pol­icy ac­tions to re­duce the EU’s to­tal stock of bad loans, which amounted to nearly 1 tril­lion eu­ros ($1.14 tril­lion) at the end of 2016 equiv­a­lent to 6.7 per­cent of the bloc’s an­nual GDP, or 5.1 per­cent of to­tal loans.

“Non-per­form­ing loans are a prob­lem for the bank­ing in­dus­try for which so­lu­tions have un­til now been mainly de­fined at the na­tional level,” said Toomas Ton­iste, Es­to­nia’s finance min­is­ter who was chair­ing the meet­ing as his coun­try has taken over the ro­tat­ing 6-month pres­i­dency of the EU. “We need a more col­lec­tive ap­proach,” he added. Among the mea­sures pro­posed is re­form of in­sol­vency and debt re­cov­ery frame­works, changes in bank su­per­vi­sion and devel­op­ing so-called sec­ondary mar­kets where “distressed” as­sets can be sold. The scale of the prob­lem varies hugely be­tween EU coun­tries, ac­cord­ing to a re­port pre­pared for min­is­ters. Swe­den’s bad loans amount to only 1 per­cent of the na­tion’s econ­omy, while Greece’s ac­count for a mas­sive 46 per­cent.

Italy gone bad

Italy is one big econ­omy that’s been con­tend­ing with loans gone bad. Its banks have been worn down by some 360 bil­lion eu­ros ($400 bil­lion) in loans that won’t be paid back in full as a re­sult of years of cri­sis and sub­dued growth that’s made it dif­fi­cult for firms and house­holds to ser­vice their debts. The scale of the non-per­form­ing loans stands a lit­tle be­low 20 per­cent of the banks’ to­tal loan stock, a level that weighs on their propen­sity and abil­ity to lend. Last week, the Ital­ian govern­ment took con­trol of bank Monte dei Paschi di Siena un­der a re­launch plan that in­cludes the dis­posal of 28.6 bil­lion eu­ros in bad loans at a big dis­count to their orig­i­nal value. The bailout in­cludes the use of tax­payer money to shore up the bank, some­thing new EU rules try to avoid, but was cleared by EU author­i­ties.

The hope is that by get­ting a grip on bad loans, the Ital­ian econ­omy can move on. Spain has also had its prob­lems. Banco San­tander, for ex­am­ple, paid the sym­bolic sum of 1 euro to take over lo­cal rival Banco Pop­u­lar, a long-trou­bled lender that the Euro­pean Cen­tral Bank warned was “fail­ing or likely to fail.”That was the first time the ECB had ef­fec­tively pulled the plug on a bank since it get­ting new pow­ers aimed at pre­vent­ing fi­nan­cial in­sti­tu­tions from dis­rupt­ing govern­ment fi­nances through bailouts, as they did dur­ing the eu­ro­zone’s debt cri­sis. — AP

BRUS­SELS: Italy’s Finance Min­is­ter Pier Carlo Padoan, right, talks with Spain’s Finance Min­is­ter Luis de Guin­dos, left, and Lux­em­bourg’s Finance Min­is­ter Pierre Gramegna prior to a meet­ing of EU finance min­is­ters at the EU Coun­cil build­ing. — AP

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