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EU Parliament, Council reach agreement on new soured debt rules

The EU Parliament and Council agreed Dec. 18 on new rules that will ease requirements on the capital banks must hold as a buffer against losses from nonperforming loans, according to a European Commission statement.

The prudential measures, which will come into effect after final approval from the EU parliament and governments, aim to mitigate the future buildup of bad loans. Rules adopted earlier in December by a parliament committee gave banks three years to fully provide for unsecured loans after they turn bad, and eliminated a requirement that they set aside 35% of the amount needed after two years.

The new compromise restores the 35% requirement, and also sets out the timetable for building up provisions for real estate, Reuters reported, citing a copy of the agreement it had seen. Lenders will have seven years to provide for loans backed by movable collateral and nine years to do so for immovable property.

The compromise on timings largely reflects what EU states had proposed and are tougher than what the parliament had recommended, although weaker than proposed by the EC in March. The new rules will still require approval by parliament and EU member states, although no further changes can be made to the compromise text, Reuters noted.