European banks will have 9 years to provision their new ‘toxic assets’

European banks will have 9 years to adapt to the new capital requirements from the European Union related to the level of distressed debt in their balance sheets. That’s what the Twenty Eight settled last Wednesday, two days before the results of the stress tests from the ECB show how healthy are European banks.
The governments of the EU have set their position in anticipation to the talks that will begin with representatives from the European Parliament to approve the regulation, once the euro MPs agree on their “red lines”.
Specifically, the proposal demands banks a given level of provision, according to the level of distressed debt. The new levels of coverage impact only the new non-performing loans and not the ones already in the balance sheets of the entities. The level of these provisions depend, as well, on the class of these toxic assets.
The deadline to reach the total provision will be extended up to nine years in the case of the distressed debt with less risk, those secured by properties. Specifically, they demand coverage of these assets to be set on 25.5% three years after the ‘distressed’ classification. This percentage will increase progressively until reaching 100% at the ninth year, says Europa Press.

One more year than expected

The negotiating position of the UE governments gives, thus, one more year to the financial entities for fully provisioning all their new non-performing loans, compared to the European Commission’s proposal, that established eight years to provision secured debt.
The Twenty Eight, however, are reducing to seven the deadline of the banks to provision at 100% those defaulted loans secured by movable collaterals.
Lastly, the coverage level is tightened for those distressed assets without collaterals, that will have to be provisioned at 35% two years after being classified as such and 100% a year later.
“To handle the toxic assets and consolidate the banks’ balance sheets is essential to return the trust in our financial system. This requires solid prudential rules and effective supervision tools”, said Hartwig Löger, Austrian Finance Minister, that holds the Turn Presidency of the UE until the end of the year.

Source: OK Diario.

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