European banks will have to provision for the totality of new unsecured loans within 2 yrs

European banks

The ECB is proposing a tightening up of the provisions required from the European banks to cover loans which are classified as doubtful from January 2018, according to today’s press. The central bank has opened the proposals for consulation until December 8.

The central bank is trying to stop a new pile of problem debts being built up by establishing how much cash it wants lenders to set aside for bad debts incurred from the beginning of next year.

“The banks are expected to have provisioned for 100% of the unsecured part of any new loans within two years,” ACF says. The analysts explain:

“The provisions will be applied linearly from the acknowledgment of the doubtful loan to coverage of 100%, although national supervisors will be able to request that this process is carried out faster.”

This new regulation will complement the measures announced by the ECB in March, intended to tackle the existing bad debts situation amongst the Eurozone banks, ACF adds.

This news will tend to be negative for the banks, given that its means more stricter regulations with regard to how they provision for future problem loans, the analysts conclude.