The ECB may give eurozone banks an extension until 2021 to complete the implementation of guidance regarding new non-performing loans (NPLs), according to a document released today.
The ECB’s guidance on new NPLs comes into effect on 1 April.
However, supervisory authorities may possibly delay a few years before forcing banks to issue projections regarding loans that become overdue after the deadline, the ECB said in an announcement.
Saddled with about 750bn euros in NPLs, eurozone banks are trying to resolve an issue that is a major impediment to issuing new loans, while undermining ECB support with interest rates at a historic loan.
In order to moderate its more aggressive initial stance toward dealing with new NPLs, the ECB said the guidance is not binding, and will be implemented in the context of an ad hoc dialogue with banks as to how to draft projections regarding NPLs.
The results of that dialogue will for the first time be incorporated in the 2021 evaluation procedure.
Banks will have to use the interim period to prepare and adjust their projection policies on lending, and the criteria for limiting the creation of new NPLs, particularly in the current, favourable economic conditions.
According to the guidelines, banks will have a two-year period to formulate projections on the total amount of loans without collateral, and a seven-year period for loans with collateral.