Banks will set own targets to sort out loans under ECB plan

The high volume of cases and the slow pace of repossessions through the courts here are a challenge to efforts to resolve problem debt, according to a cross-country comparison of problem loans.

It shows Irish banks continue to have some of the highest levels of problem debts in the euro area, despite more than €124bn of debts being taken into Nama or disposed of by lenders since the crash.
A European Central Bank (ECB) working group, led by the Central Bank of Ireland deputy governor Sharon Donnery, launched a public consultation aimed at speeding up Eurozone banks’ resolution of problem loans yesterday.

Nine years after the start of the great crash, European lenders continue to hold dangerously high levels of non-performing loans – around €1.1 trillion – including soured business, property debts and mortgages and consumer credit in arrears.
There is as yet no common approach to tackling high levels of arrears.

The ECB published its guidance for banks dealing with non-performing loans (NPLs) yesterday as part of a wider consultation process aimed at mapping out common practice across member states.
That includes timetables to reduce arrears over two and three-year periods, best practice in terms of staffing arrears resolution units and the kinds of IT capacity needed to work through loan books.

Under the ECB plan all lenders will have targets to cut bad loans.
However, the banks will set their own targets which will be non-binding.

Analysts said that risks could allow the current drift to continue.
“This guidance gives banks a green light to manage NPLs internally, so this perpetuates the impasse,” said Gennaro Pucci, chief investment officer at PVE Capital, a fund that has been buying Italian bad loans. However, failure to reach targets may lead to “supervisory measures” by the ECB, such as higher capital requirements, the regulator said.

“If there were significant gaps, then obviously we would be discussing with the bank how they would move close toward compliance with the guidance, particularly the time frame over which that was going to happen,” said Sharon Donnery.
The consultation runs until November 15, including public hearings on November 7.

Irish banks already have hard targets for dealing with mortgage arrears as well as timetables to work through problem SME loans. The bulk of their large property lending was shifted to Nama.
However, Ireland remains a blackspot for problem debt. There was more than €50bn of bad loans on the books of Irish lenders at the end of 2015. A “stocktake” by the ECB shows almost a fifth of Irish bank loans were in trouble, compared at an average of 7pc in the Eurozone, at the end of 2015.

That ratio rises to 47pc in Greece.

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