The European Commission is expected to announce Oct. 11 plans to put forward a package of measures aimed at reducing banks' nonperforming loans, a few days after the ECB unveiled similar legislative proposals, Reuters reported.
In a draft document, the commission said that by spring 2018, it could propose to revise banking rules "with regard to the possible introduction of minimum levels of provisioning which banks must make for NPLs."
The potential measures will be aimed at preventing the build-up and potential underprovisioning of future NPLs stocks across EU member states and banks "via time-bound prudential deductions from own funds," according to the Oct. 10 report.
On Oct. 4, the ECB unveiled proposed guidelines that will force banks across the eurozone to set aside more cash to cover loans classified as nonperforming after Jan. 1, 2018. Under the draft addendum, banks will be given two years to reserve enough money to cover 100% of their nonperforming unsecured debt and seven years to cover all their secured bad debt.
Such a move by the EC could decelerate that of the ECB, as the process of approving EU legislative proposals could take months or years, Reuters noted. The EC could ultimately decide not to propose new legislative proposals on banks' bad loans, one EU official told the newswire.
The ECB's NPL plan was met with opposition by Italian politicians. European Parliament President Antonio Tajani said the strategy to address bad loans should be formulated through a regular legislative process instead of being unilaterally decided by the central bank, while Italian Finance Minister Pier Carlo Padoan said he had "doubts" about the plan's method. By contrast, outgoing German Finance Minister Wolfgang Schäuble expressed his support for the ECB's proposal.
The commission will also propose new measures to boost financial stability in the region and will reiterate plans to support banks' recovery of soured credit and the creation of a secondary market for bad loans, which will enable lenders to market them at higher prices, Reuters noted.