VALLETTA Italy's finance minister said on Saturday that banks should be allowed to offload their bad loans in a "reasonable" time, urging the European Central Bank to be cautious in its push to clear banks' balance sheets of soured credit.
The European Central Bank is pushing lenders with a high ratio of so-called non-performing loans (NPLs) to sell them, causing Italian banks to rush to offload their bad loans, which account for a quarter of the EU total.
In total, EU banks are saddled with more than 1 trillion euros ($1 trillion) worth of NPLs that they have accumulated since the 2008 global financial crisis, as firms and households struggled to pay their debts, with the problem mostly affecting southern European countries.
Speaking after a meeting of EU finance ministers in Valletta, Malta, Pier Carlo Padoan told reporters he agreed with the ECB policy that banks should reduce NPLs at a faster pace than they currently do.
But added that sales should not proceed too fast, so that banks could have the time to sell their bad loans at higher prices or could even recover them from their creditors.
"We cannot demand that suddenly banks offload their NPLs, because this could be potentially destabilizing, especially if the problem involves several banks in the same banking system," Padoan told a news conference.
Banca Monte dei Paschi di Siena (BMPS.MI), Italy's fourth largest lender, holds the largest proportion of bad loans compared to its capital and is negotiating the terms of a multi-billion-euro bailout with EU regulators to plug part of the shortfall that would be caused by writing off a large chunk of its loans.
Padoan said he was "moderately optimistic" that a deal could be reached soon with EU regulators on the Monte Paschi rescue plan.
UniCredit (CRDI.MI), Italy's biggest bank, has sold 17.7 billion euros of bad loans at an average 13 percent of their gross nominal value this year and it has raised 13 billion euros in the markets to compensate the capital shortfall.
The ECB, which supervises euro zone banks through its Single Supervisory Mechanism, included the offloading of NPLs in its priorities for this year and urged ailing banks to submit "ambitious and realistic" selling plans.
Padoan's remarks came the day after EU finance ministers discarded ideas of setting up an EU-funded bad bank to absorb bad loans at prices higher than the current low market value.
(Reporting by Francesco Guarascio; editigng by Jan Strupczewski and Ros Russell; @fraguarascio)