ECB may shelve crackdown on bad loans if happy with bank plans: Angeloni

By Francesco Canepa

FRANKFURT (Reuters) – The European Central Bank could shelve a planned crackdown on the euro zone’s huge stock of unpaid loans if it is satisfied with the banks’ own plans to deal with the matter, a top ECB supervisor said on Friday.

Ignazio Angeloni’s comments follow a fierce backlash in Italy, home to a third of the euro zone’s bad loans, against new ECB rules forcing banks to set aside more money against loans that sour.

These were scheduled to be complemented by measures on legacy unpaid credit, a far thornier issue worth 843 billion euro ($978 billion), in the new year. But Angeloni said this would depend on whether banks’ own plans go far enough.

“The analysis of the banks’ plans is not yet complete,” Angeloni told a conference.

“Depending on how satisfactory that part of the plan is, we will by the end of the first quarter of next year determine whether or not an additional backstop also on the stock is needed.”

The ECB’s latest guidelines, which give banks seven years to make provisions for newly soured credit backed by collateral and two years for unsecured debt, are not binding but banks have to explain any deviation and may face higher capital demands.

The main worry for Italy is that its banks, if asked to set aside more money, may curtail lending or need to raise capital. This task has eluded Monte dei Paschi di Siena (MI:) and two regional lenders in recent months, triggering state interventions.

Reuters reported last week ECB supervisors had been working on similar guidelines for the stock of bad loans but were now having to change tack due to the coordinated Italian backlash.

ECB vice president Vitor Constancio said on Thursday the approach to tackling legacy credit would be “different” and “careful”.

The Italian banking lobby, government, central bank and even top European parliamentarians said the new rules jeopardized economic growth and went beyond Frankfurt’s remit.

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