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Report: EC to give European lenders 8 years to write down bad debt

The European Commission will propose to give lenders in the European Union eight years to write down nonperforming loans backed by collateral, as part of its plans for banks to address their €759 billion bad-debt problem, a "source familiar with the matter" told Reuters.

Under the EC's proposed measures, which are due to be published March 13, the percentage of bad loan write-downs required every year, once a loan is impaired, would increase progressively over time, according to the source. Loans not fully covered by collateral would be treated as secured for the portion equivalent to the collateral held, and unsecured for the remainder, the source noted.

Unsecured loans would have to be written down by 35% in the first year and by the remaining 65% in the second year, the source told the newswire.

The ECB will disclose March 14 its own guidelines for how it wants banks to deal with toxic loans. The central bank's proposed guidance, which has faced criticism, particularly in Italy, would require lenders to write down bad loans backed by collateral in seven years and unsecured loans in two years, with write downs split equally over the years, according to the report.