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EU pins hopes on markets to absorb bank loans hit by coronavirus

Euro banknotes and coins are displayed in a shop in Brussels, Belgium November 14, 2017. REUTERS/Eric Vidal

LONDON (Reuters) - The European Union is developing plans for markets to help banks offload a “resurgence” in coronavirus-hit loans and avoid choking economic recovery, the bloc’s choice for its financial services chief said on Friday.

Known as non-performing loans or NPLs, addressing soured debts is set to become more pressing as payment “holidays” introduced by banks on mortgage and business loans when economies went into lockdown are being phased out.

In a European Parliament hearing on Friday to confirm the appointment of Mairead McGuinness as EU financial services commissioner, lawmakers expressed concerns about giving banks too much freedom to offload bad loans and put consumers at risk of home repossession.

McGuinness said there was a need for a mechanism to take bad loans off banks’ books so they keep lending.

“If we leave a build up of NPLs, they can’t do that,” McGuinness said. “If we do nothing, we will have a worse problem.”

The European Commission would present plans later in the year for a “collective response” across EU states to deal with an anticipated resurgence in loans soured by COVID-19 tipping the economy into recession, she said.

The strategy would focus on developing secondary markets for distressed assets, and reforming the bloc’s fragmented insolvency regime, she said.

“I will be very mindful of how these secondary markets operate, and I think family homes should be protected,” McGuinness said.

The European Central Bank’s top banking supervisor said on Thursday that lenders need to quickly recognise newly soured loans on their books and set aside provision to cover them.

Reporting by Huw Jones; Editing by Alex Richardson

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