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UPDATE 1-EU states soften draft rules for how banks deal with bad loans

Updated: 31-10-2018 17:28 IST
European Union diplomats agreed on Wednesday new draft rules for how banks should handle bad loans, an EU statement said, aiming to address a problem that still dogs the region a decade after the financial crisis.

The deal softens legislative changes proposed in March by the executive European Commission. It still needs the approval of the EU parliament.

Under the proposal, banks will have more time to set aside money to cover possible losses from bad loans.

States backed extending to three years, from two, the time that banks have to cover new unsecured, riskier loans that go bad.

They also agreed to postpone the application of the new requirements. They were initially planned to be applicable from March 2018, meaning that banks would have had up to March 2020 to fully cover losses from unsecured debt.

EU governments agreed instead that only loans issued after the new rules are adopted will be subject to the new requirements, effectively giving banks more than three years to cover losses from these loans.

The date of entry into force of the new rules will depend on when a deal is reached with EU lawmakers on the proposal.

Also, non-performing loans secured by immovable property will need to be fully covered in nine years instead of eight.

In a concession to states, like Germany, that wanted stricter rules, banks will have seven years, instead of eight, to build a backstop that will fully cover new bad loans secured by movable collateral.

Loopholes that would have allowed lenders to set aside less money for some loans have also been eliminated from the original proposal, a diplomat said. (Reporting by Francesco Guarascio, Editing by Louise Heavens and Mark Potter)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)