ECB Asks Banks to Set Aside More Cash on Bad Loans

The European Central Bank will ask euro area banks to set aside more cash to cover bad loans from next year, it said on Wednesday, as it tries to tackle the sector’s persistent problem with soured loans, reported Reuters. 

Starting Jan. 1, banks will have at most two years to set aside funds to cover 100 percent of the value of their newly classified non-performing unsecured debt and seven years to cover all secured bad debt, it said in a statement, confirming an earlier Reuters report.

“Furthermore, banks are expected to explain any deviation from the guidance to supervisors,” the ECB said. “Based on the banks’ explanations the ECB will assess the need for additional supervisory measures.”

The measures will not affect the nearly 1 trillion euros’ worth of bad debt already on the books but the ECB said it may present further policies by the end of the first quarter to address the existing stock of bad debt.

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