European Union banks should reduce the stock of bad loans to a maximum of 5 percent of the loans they hold, Germany and France said in a joint document, recommending a ceiling that would force Italy and other EU countries to hasten offloading plans.
The document, adopted before an EU summit scheduled for next week in Brussels, said that all European banks should aim at reducing their gross exposure to non-performing loans (NPLs) to a maximum ratio of 5 percent.
SRB banks are all large euro zone lenders and are under the watch of the EU agency responsible for resolving ailing banks. "Competent authorities will define individual strategies for the reduction of NPL stocks for relevant banks," the document said.
Exposures are also above the 5 percent suggested target in Bulgaria, Croatia, Hungary, Ireland, Portugal, Slovenia, Poland and Romania, according to European Banking Authority's data updated to last December.
Italy, whose banks hold the bloc's largest stock of soured debt in absolute terms, has reduced NPLs in recent months but has repeatedly argued against hastening the offloading process to avoid excessive costs on lenders.
But the Franco-German plan urges an acceleration.
"Member states/banks that do not reach these goals will undertake specific efforts also involving their insolvency/debt enforcement regimes to reach these goals in a short period of time," the document said.
"Union legislation on Accelerated Extra-judicial Collateral Enforcement (AECE) offering additional options for improvement of collateral enforcement should be adopted."
The call for an overhaul of insolvency rules is aimed at helping banks recover loans that went sour after Europe's debt crisis. It could however run against plans from Italy's new eurosceptic government to abolish any rule that could allow for faster, extra-judicial debt recoveries, according to the programme agreed by Italy's coalition executive.
Germany and France see the reduction of NPLs as crucial for progress on the EU's flagship banking union, which would involve a common safety net for a banking fund for ailing lenders and a joint insurance on bank depositors.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)