The European Central Bank’s new rules forcing lenders to set aside more cash for loans that go unpaid may come into force on April 1, three months later than originally planned, the ECB’s chief supervisor Daniele Nouy said.
Heavy criticism from southern nations forced the ECB to rethink its proposal and while no fundamental change in the proposal is likely, the ECB is expected to refine its text to fend off criticism.
Nouy said the new rules will be unveiled by mid-March and could become effective on the first day of the following month.
“I know that the date of first of April is a possibility but nothing yet has been decided,” Nouy said, confirming a Reuters report published last month.
Sources close to the discussion had told Reuters that if the package comes into force from April 1, provisions would likely have to be built from the next accounting period, or mid-year for most.
Banks were sitting on 759 billion euros ($937 billion) worth of soured debt at the end of the third quarter with banks in Italy, Greece, Ireland, Portugal and Slovenia struggling the most.
The proposal would give banks seven years to fully provision newly soured credit backed by collateral and two years for unsecured debt. But it would not affect already soured debt, which will be covered in a separate proposal.
As part of the clarification, the ECB will stress that the rules will be applied on a case-by-case basis and there will be no automatism to force provisioning, a move which could be seen as encroaching on regulatory or legislative prerogatives.
Bad debt weighs on banking balance sheets and holds back lending, countering the very stimulus the ECB is trying to provide with rock bottom interest rates.
But Nouy said banks are making progress, primarily because the ECB has been putting pressure on them.
“Indeed a number of banks are changing their policy using good times to do what they can do, more than they planned in the beginning,” Nouy told a press conference. “This is what in my view good supervision is about.”
Her deputy Sabine Lautenschlaeger stressed selling the unpaid loans was not the only was to achieve that and a good and efficient “work-out” process inside the bank was essential.