ECB takes aim at banks’ bad loans again

The ECB has ramped up efforts to tackle the mountain of soured loans in many eurozone banks, seeking to repair damage caused by years of lax supervision and feeble economic growth.

The ECB’s draft guidelines aim to help eurozone banks get out from under €1.1trn of doubtful and non-performing loans. The proposals issued yesterday address the “main aspects regarding strategy, governance and operations” needed for banks to reduce their stocks of bad loans, and set out best practices that will “constitute the ECB’s supervisory expectations”, the bank said.

Daniele Nouy, head of the ECB’s supervisory arm, has made tackling non-performing loans a priority since the central bank began overseeing eurozone banks in 2014. The problem, which is particularly acute in Italy, has been exacerbated by factors including the anaemic economy, “poor banking practices, flawed legal frameworks for debt recovery and a lack of capacity in the judiciary system”, Ms Nouy said in June.