Online loans – European banks urged to recognize loan losses from Covid | Zoom Fintech


Loans Online – European banks urged to acknowledge loan losses from Covid

Photographer: Alex Kraus / Bloomberg

the The European Union’s main banking regulator has urged lenders to quickly write off loans that fail in the aftermath of the pandemic, warning that without action, “zombie” companies could harm economic recovery.

José Manuel Campa, president of the Parisian company The European Banking Authority said in an interview on March 19 that regulators expect NPLs to “increase significantly” in the coming quarters, after a year of government support for borrowers and banks having removed payment defaults. There should be “as early recognition as possible” of the losses, Campa said.

Although EU banks have set aside billions of euros to cover sour debts, the actual ratio of NPLs declined to 2.6% at the end of last year, which Campa called of “paradoxical” while Covid-19 plunged the economy into a recession.

“You have to do a risk-by-risk, item-by-item assessment and try to provision them properly,” Campa said. The more borrowers rely on payment holidays, “the more you are likely to see cliff-edge effects, because the more these loans have likely deteriorated over such a long period,” he said.

“There are likely to be companies that just don’t have viable business models on display and they will have to exit the market and they will have to be liquidated,” Campa said.

European Banking Authority Chairman Jose Manuel Campa comments on post-Brexit banking on Bloomberg Television. (Source: Bloomberg)

The banks themselves have more capital to deal with losses than they had during the financial crisis, but Campa said authorities and industry should always be careful not to create ‘zombie banks’ that delay taking losses on loans but also withhold new loans.

Campa’s position and recent warnings from the European Central Bank show that European authorities are preparing for the full effect of the pandemic to spill over into the economy once the temporary relief measures expire. The E(BA) also resumes the stress tests of the banks this year.

Campa also said:

  • a post-Brexit memorandum of understanding, expected by the end of this month, would be a “first step” towards cooperation between British and European financial authorities
  • regulators should continue to refine the rules on capital buffers to ensure they are used as intended during crises
  • global authorities must strive to maintain a level playing field in regulation, which may become more difficult as countries emerge from Covid-19 at different speeds
  • there should be more global coordination of regulations to tackle climate change

Loans Online – European banks urged to acknowledge loan losses from Covid

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