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Mostly national solutions to EU's bad loan problem - Commission's Dombrovskis
April 7, 2017 / 5:04 PM / 5 months ago

Mostly national solutions to EU's bad loan problem - Commission's Dombrovskis

VALLETTA, April 7 (Reuters) - Bad loans at some European Union banks pose a problem to the whole bloc but solutions are to be found mostly at national level, the vice president of the EU Commission said on Friday.

EU banks are saddled with more than 1 trillion euros ($1 trillion) worth of so-called non-performing loans (NPLs) that they have been accumulating since the 2008 global financial crisis, as firms and households struggled to pay their debts.

While the problem is more acute in countries such as Greece and Italy, which have experienced a prolonged economic crisis, it has a European dimension because spill-overs are possible, Valdis Dombrovskis told a news conference after a regular meeting of euro zone finance ministers in Valletta, Malta.

But he also stressed that the solution to the problem is “primarily” a national responsibility for the countries with the highest ratio of bad loans.

In absolute terms, a quarter of all EU bad loans are held by Italian banks, with Banca Monte dei Paschi di Siena, which is negotiating the terms of a multi-billion-euros bailout with EU regulators, holding the largest proportion of bad loans compared to its capital.

German banks hold only 2.5 percent of NPLs, while in Greece and Cyprus nearly half of all loans are bad, according to the latest European Banking Authority data.

Because of these national differences, EU countries have struggled to agree a common position despite risks that it will drag on the whole bloc’s economic growth and hamper banks’ lending to companies and households.

“We want to solve it but it’s a tricky subject to deal with,” Maltese finance minister Edward Scicluna said. EU ministers discussed a possible European approach to the issue and mandated a team of experts to produce a report by June.

Strengthening the secondary market for bad loans, which are priced too low for banks to be interested in offloading them, is one of the solutions that ministers weighed for possible EU action.

But they fell short of supporting a plan by the European Banking Authority to set up an EU publicly-funded bad bank that would absorb most of the soured loans.

Germany opposes the plan, fearing that rescuing foreign banks could cause disproportionate costs to its taxpayers. (Reporting by Francesco Guarascio; Editing by Louise Ireland)

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